Definition and objective of equalisation levy
The equalisation levy is a tax introduced to address the issue of taxing digital transactions conducted by non-resident entities in India. It aims to tax the income generated from Indian users through online platforms.

• It applies to specified services and e-commerce transactions
  
• The levy targets non-resident companies without a permanent establishment in India
  
• It was introduced under the Finance Act and not the Income Tax Act
  
• Its purpose is to ensure fair taxation of digital economy profits
  

Applicability to non resident digital companies
Equalisation levy applies to non resident entities providing online advertisement, digital services, or e-commerce supply to Indian customers or users.

• Covers services such as digital advertising and data usage
  
• Includes platforms selling goods or services online to Indian users
  
• No levy applies if the entity has a permanent establishment in India
  
• Does not apply to domestic companies or Indian residents
  

Rate and threshold of the levy
Different rates apply depending on the nature of the transaction. The levy is applied as a percentage on the gross consideration received or receivable.

• Six percent applies to online advertisement and related services
  
• Two percent applies to e-commerce supply or services by non-residents
  
• Exemption applies if aggregate revenue does not exceed two crore rupees
  
• The threshold is based on annual receipts from Indian residents or users
  

Responsibility for collection and payment
The responsibility to collect and deposit the equalisation levy depends on the nature of the service and the parties involved in the transaction.

• For advertisement services, the Indian payer must deduct and deposit the levy
  
• For e-commerce services, the non-resident e-commerce operator must pay directly
  
• Payment is to be made to the central government account
  
• Quarterly and annual statements must be filed in Form one
  

Exemptions and exclusions under the levy
Certain conditions exclude transactions from the scope of equalisation levy. These include cases where the income is already taxable or where treaties apply.

• Levy is not applicable if payment is below the prescribed threshold
  
• Not applicable if services are used for business outside India
  
• Exempt if income is taxable under the Income Tax Act
  
• Payments made to a permanent establishment are excluded
  

Compliance and filing obligations
Entities liable to pay equalisation levy must fulfill specific compliance requirements. These include timely deposit and accurate return filing.

• Monthly deposit of tax by the seventh of the following month
  
• Annual statement of equalisation levy in Form one by June thirtieth
  
• Late payment attracts interest and penalties under the Finance Act
  
• Non compliance may lead to disallowance of expenses under income tax
  

Impact on international tax and treaties
The equalisation levy operates outside the scope of traditional tax treaties. It may lead to double taxation unless unilateral or bilateral relief is provided.

• Most tax treaties do not cover equalisation levy as it is not income tax
  
• Foreign service providers may not get credit in their home country
  
• It may trigger discussions under OECD and BEPS frameworks
  
• Legal and diplomatic challenges have emerged over its extraterritorial scope