In line with action plan 1, which is a self contained code for taxing digital transactions the government w.e.f. 1 June 2016 had inserted a separate chapter VIII in Finance Act 2016 titled equlisation levy to test the base erosion and profit shifting. The newly inserted chapter provide for an equilisation levy of 6% on specified transaction (services) provided on or after 1st June 2016. Equilisation levy is akin to tax deduction at source but has been introduced in a separate chapter instead.
Prior to this levy, any amount paid to a non resident who had no business connection in India or had no permanent establishment in India was not subjected to tax at source. The newly inserted provisions shall attract levy on amount paid to a non resident not having any permanent establishment in India if such amount exceeds one lakh rupees in a previous year. The government has notified only one service as specified service till date which is online advertisement, any provisions for digital advertisement space or any other facility for purpose of online advertisement.
A Resident responsible for making payment to a non resident has to deduct 6% as levy and deposit it within 7 days of the month following the month in which tax was deducted to the credit of Central Govt. A specific challan ITNS 285 has been notified in the chapter. An annual return (form-I) has to be filled by the assessee within 30th June of the following year.
Interest & Penalty
If the assessee fails to credit whole or any part of levy within the period specified, an interest @ 1% has to be deposited for every month or part of the month by which such crediting of the tax is delayed.
If the assessee fails to deduct whole or part of tax as required u/s 166 or having deducted the levy fails to pay such levy to the credit of Central Govt. in accordance with provision, he shall be liable to pay in addition to the interest or levy a penalty equal to the amount of levy or a penalty of one thousand rupees every day during which such failure continues respectively. However, penalty can’t exceed the amount of equalization levy.
Issue related to form 15CA/15CB
Section 195 of the act requires a certificate in form 15CB to be furnished by a CA in respect of payment made to non-residents which are chargeable to tax and the amount of payment during the year exceeds 5 lakh rupees. The introduction of equlisation levy has created some confusion among professionals regarding levy; whether equlisation levy is a tax as per IT Act and therefore whether any payment made in excees of 5 lac for online advertisement on which equlisation levy is applicable falls in ambit of providing certificate in Form 15CB.
As discussed above, equlisation levy has been introduced as a separate chapter in Finance Act and is therefore outside the scope of chargeability under the Income Tax Act. The Requirement of filling 15CB (along with 15CA part C) is only on payment on which tax is deducted under the Income Tax Act.
In our view, equalisation levy has to be paid on remittance outside India if it relates to online advertisement and hence only form 15CA part D should be filled if the non-resident has no permanent establishment in India.
Government has till date only notified one service as specified service, there are chances that govt. may introduce a whole list of services in coming days or may even introduce a negative list alike service tax to cover up all the transactions having possibilities of eroding tax base.