Step 1: Determine Whether You Are an E-Commerce Operator
A business qualifies as an e-commerce operator if:
- It is a non-resident entity
- It owns, operates, or manages a digital/electronic platform
- The platform facilitates online sale of goods or online provision of services
Examples:
- Online marketplaces
- Streaming platforms
- Travel booking websites
- Digital SaaS providers
- Foreign e-commerce stores supplying to Indian customers
If the entity matches these conditions, step 2 applies.
Step 2: Check Whether the Transaction Falls Under E-Commerce Supply or Service
EL applies when:
- Goods or services are supplied online, AND
- The supply involves at least one of the following:
- Sale to a person in India
- Sale to a non-resident for use by a person in India
- Sale of advertisements targeting Indian customers
- Sale of data collected from Indian users
If any of these conditions are met, EL becomes applicable unless exempted.
Step 3: Verify the Annual Turnover Threshold
EL applies only when the annual consideration received by the non-resident from India exceeds:
₹2 crore in a financial year
If the threshold is crossed → EL @ 2% applies.
If not → EL does not apply.
Step 4: Check if Any Exemptions Are Available
EL does NOT apply if:
- The e-commerce operator has a Permanent Establishment (PE) in India
- The sales or services are effectively connected with that PE
- The transaction is already subject to the 6% EL
- Consideration is taxable as “royalty” or “fees for technical services (FTS)” in India
If no exemption applies → proceed to tax calculation.
Step 5: Compute Equalisation Levy @ 2%
The levy is charged at 2% of the gross amount of consideration received or receivable from:
- E-commerce goods supplied
- E-commerce services provided
- Online marketplace transactions
- Digital content subscriptions
- Cloud services
- Online ticket booking
- Data monetization
Important:
No deduction of expenses is allowed—EL is charged on gross value.
Step 6: Deposit the Equalisation Levy to Indian Government
The e-commerce operator must deposit EL:
- Quarterly payment
- Through Form 1 challan
- Paid electronically into the government treasury
Due Dates for Payment (Quarterly)
| Quarter | Due Date |
|---|---|
| April–June | 7 July |
| July–September | 7 October |
| October–December | 7 January |
| January–March | 31 March |
Late payments attract interest @ 1% per month.
Step 7: File the Annual EL Statement (Form 1)
Every non-resident e-commerce operator must file:
Form 1 – Statement of Equalisation Levy
- Filing Deadline: 30 June following the financial year
- Filed online through the Income Tax Department portal
- Includes details of all transactions, customers, and levy paid
Delayed filing leads to penalties.
Step 8: Maintain Documentation & Transaction Records
E-commerce operators must maintain:
- Transaction-wise revenue details
- User location data (to prove India-based usage)
- Payment receipts
- Invoices
- Evidence of EL deposits
- Annual reconciliation statements
These documents help during audits and assessments.
Step 9: Understand Penalties for Non-Compliance
| Non-Compliance | Penalty |
|---|---|
| Failure to deposit EL | Equal to the amount of EL not paid |
| Late payment | 1% interest per month |
| Failure to file Form 1 | ₹100 per day |
| False statements | Prosecution + fine |
Non-compliance can also lead to disallowance of expenses in the payer’s books under the Income Tax Act.
Step 10: Review DTAA Applicability (If Any)
EL is not covered under most DTAAs because it is not categorized as income tax.
This means:
- DTAA benefits cannot be claimed
- EL is a separate levy and must be paid independently
International businesses must plan for this additional tax layer.
Conclusion
The Equalisation Levy (‘EL’) is India’s strategic tool to tax the digital economy and ensure fair revenue from non-resident e-commerce operators. Understanding and following the step-by-step compliance process—from determining applicability to filing Form 1—helps avoid penalties and ensures smooth operations when dealing with Indian customers.
The information provided in this blog is for general informational and educational purposes only and should not be construed as legal, tax, or professional advice. While every effort has been made to ensure accuracy and compliance with the applicable provisions of the Companies Act, 2013 and related rules, laws and regulations may change over time and interpretations may vary based on specific facts and circumstances
All services are subject to applicable laws, rules, and government approvals prevailing at the time of execution.