Equalization levy

Equalization Levy – Taxing Digital Economy Transactions

June 9, 2016

India has taken its first major step towards taxing digital economy transactions. Finance minister in his budget for fiscal 2016-17 had announced the introduction of ‘Equalization Levy’, to tax the e-commerce transactions / digital business conducted across national borders.

Recently, CBDT has issued a circular bringing in details of the levy with regards to payment, statement of specified services required to be furnished, time limits, demand notice and appeal to Commissioner of Income-tax in case of any disputes

Here is quick glance at the new scheme:

What is equalization levy:

  • Equalization levy is a tax levied on consideration or payment received or receivable exceeding Rs. 1 Lakh for any specified services like online advertisements / digital advertisements across borders.

Applicable From:

  • With effect from 1st June, 2016 at a rate of 6% of the payment received or receivable.

To whom its applicable:

  • Payments made by
    • a person resident in India and carrying on business or profession; or
    • a non-resident having permanent establishment in India
  • Payments made to Non-resident not having Permanent Establishment (“PE”) in India
  • Towards specified services i.e, online advertisements/digital advertisements

Deduction & Payment of Equalization levy:

  • Person making the payment need to deduct the equalization levy from the amount paid/payable and deposit to the Central Government account
  • The amount so deducted to be deposited within 7th of the following calendar month through equalization levy challan

Exclusions: Equalization levy will not be applicable in below cases:

  • Payments to a particular Non-Resident is less than Rs 1 lakh
  • Payment for specified service is not for Business/Profession
  • Payments to Non-resident having a permanent establishment in India

Filing Statement of Equalisation Levy (Form1):

  • A return has to be filed after the end of the Financial Year in Form 1 on or before 30th June immediately following the Financial Year.
  • Return can be furnished
    • Electronically under digital signature; or
    • Electronically through electronic verification code
  • Provision for revised return within 2 years from the end of the financial year in which the specified service was provided


  • In case payer fails to deduct levy and deposit to the Central Government within stipulated time, 30% of the expenditure will be disallowed while computing total Income of the payer.
  • Interest on delayed payment @ 1% applicable for every month or part of the month.
  • Penalty for failure to deduct or pay equalization levy will be as follows:


Failure to deduct An amount equal to equalization levy
Amount deducted but not paid into the credit of the Central Government Rs 1000 per day during which failure continues, provided it doesn’t exceed the equalization levy
Failure to furnish statement Rs 100 per day during the period in which failure continues


Related topics: TDS on sale of property, Tax compliance window. 

Press Release and the notification from the CBDT.

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