By Jaiman Patel, Partner – Transfer Pricing (Financial Services), EY India
On July 3, the Indian government paved the way to enable payment of the new equalisation levy introduced in Budget 2020 by modifying the ITNS 285 challan, the applicable tax payment form.
A field pertaining to ‘e-commerce operator for e-commerce supply or service’ has been added in the ‘category’ of the taxpayer. Under the ‘nature of payment’ category, ‘levy payable by e-commerce operator’ has been inserted.
The address section of the modified tax payment form also enables the non-resident e-commerce operator to provide an address outside India.
Further, the tax payment form mandatorily requires the quoting of Permanent Account Number (i.e., the taxpayer identification number in India) by the non-resident e-commerce operator.
As per the current rules, the new equalisation levy must be deposited on a quarterly basis, with the due date for the first quarter (i.e., April to June) falling on July 7.
This gives non-residents less than one week to apply for the taxpayer identification number in India and deposit the taxes with the government.
This gives non-residents less than one week to apply for the taxpayer identification number in India and deposit the taxes with the government.
Prior to the release of the modified tax payment form, taxpayers requested that collection of the levy be deferred (while keeping it applicable from April 1) until such time that appropriate clarifications are issued by the government.
However, the government has made its intentions clear that neither the applicability of the new levy nor the due date for payment would be deferred.
Failure to deposit the new levy by the due date attracts simple interest at the rate of 1% per month and a penalty equivalent to the amount of the new levy.
As a recap, Budget 2020, expanded the purview of the equalisation levy introduced initially in 2016. The recent introduction levies a tax on non-resident e-commerce operators who generate revenues from India, not through physical presence, but through the use of digital means.
The objective behind this levy is simple – to capture tax revenues arising from India’s economy that historically escaped the tax net due to tax rules tied to the ‘brick-and-mortar’ economic environment developed more than a century ago.
Options available
It is recommended that e-commerce operators who do not have any ambiguity on the applicability of the new levy on their services, should immediately apply for a taxpayer identification number and pay the tax due as soon as possible to avoid interest.
While the applicability of interest and penalty may be a subject matter of litigation, the levy of interest, being mandatory, is likely unless a special request is made to the Central Board of Direct Taxes on the ground of bona fide conduct that the e-commerce operator was unable to deposit taxes within the due date, due to a situation beyond their control.
Since levying a penalty is at the discretion of the tax authority, mitigation of the same is possible, citing genuine practical difficulties, subject to the satisfaction of the tax authority.
If the e-commerce operator is uncertain if the new levy applies to their services and is waiting for clarifications from the government, it may choose to pay the levy and later file a letter with the jurisdictional tax authority intimating that the payment is made under protest without prejudice to the rights, contentions, and clarifications from the government.
Concluding remarks
The operational difficulties in implementation of this tax pose a challenge to the otherwise well-intentioned plans of the government to levy the tax on non-resident e-commerce operators.
As it is commonly said, the State must just not only do the right thing; it must do the right thing, the right way.
-The views expressed are personal.
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