India’s new 2% equalisation levy - effective since April 1, 2020 – applies specifically to the Indian digital sales of non-resident e-commerce operators.
An existing 6% levy has applied in India since 2016 but is levied on purchases of advertising services by Indian businesses from non-residents. The new equalisation levy brings into scope the sale of Indian advertising services and the sale of Indian data between non-resident businesses. This can be determined either through an advertisement targeting a customer resident in India or where data is collected on an Indian resident for use between non-resident businesses. The location of the Indian resident can be determined and confirmed via the IP address used by the customer among other identifying pieces of evidence.
It also brings into scope the e-commerce supplies to Indian individual customers (B2C) by an e-commerce operator. An e-commerce operator is defined as “a non-resident who owns, operates or manages a digital or electronic facility or platform for the online sale of goods or provision of services or both.”
An ‘e-commerce supply of services’ means:
- Online sale of goods owned by the E-commerce operator; or
- Online provision of services provided by the E-commerce operator; or
- Online sale of goods or provision of services or both, facilitated by the E-commerce operator; or
- Any combination of the above
A very narrow window for payment
One very interesting aspect of the new 2% equalisation levy is that advance payment will be due on a quarterly basis with just seven days allowed in law for the receipt of payment. This means that for sales in scope in Q2 2020 the payment must be made by Tuesday, July 7, 2020.
|Quarter ending||Due date|
|June 30||July 7|
|September 30||October 7|
|December 31||January 7|
|March 31||April 7|
It is still unclear as to how affected non-resident businesses can register to comply or what the frequency for the filing of the returns will be. Filing of returns, for example, may only be due annually.
There are also scenarios where the new equalisation levy will not apply, these include:
- When the e-commerce operators have a permanent establishment in India
- When the existing 6% equalisation levy is applicable (that is applicable to B2B transactions for online advertising and related services); and
- When sales/turnover or gross receipts of such e-commerce operators from the aforementioned supplies or services is less than INR 20 million (approximately USD263,000 as of April 28, 2020: FX conversion using xe.com).
If a decision is made by a business to wait until after the Q2 2020 payment deadline of July 7 penalties and interest for late payment may apply. This is still unclear but interest at 1% per month and a penalty equal to the amount of the equalisation levy may apply.
Calculation of tax base
The calculation of the base (i.e. the consideration on which the 2% is applied) is also unclear and we are awaiting more information from the tax authority on this point.
For example, in the case of platform liability for GST, it is unclear whether the platform will have to pay the equalisation levy on the full amount of the sale or only on the margin. It is also unclear if the foreign supplier selling through the marketplace and who has no GST registration will have an obligation to register in India for this equalisation levy. There is the risk that the equalisation levy is higher than the margin made by the e-commerce operator if the consideration is the full price paid by the Indian customer.
As the base is unclear there is the possibility of double taxation if the platform needs to pay the equalisation levy on the full amount while the underlying seller is also required to pay the levy.