With the rapid growth of the digital economy, India introduced the Equalization Levy to tax payments made to non-resident digital service providers. Businesses dealing with foreign digital platforms must understand and comply with Equalization Levy provisions to avoid penalties.
This Saving Mantra guide explains Equalization Levy in simple terms, covering applicability, rates, and compliance requirements.
What is Equalization Levy?
Equalization Levy is a direct tax introduced by the Indian government on specified digital services provided by non-resident companies without a permanent establishment in India. It ensures tax parity between Indian and foreign digital service providers.
The levy is governed by the Finance Act, 2016 and subsequent amendments.
Types of Equalization Levy in India
1. Equalization Levy @ 6%
Applicable on payments made to non-resident service providers for:
- Online advertising
- Digital marketing services
- Provision of digital advertising space
The levy is deducted by the Indian payer at the time of payment.
2. Equalization Levy @ 2%
Applicable on e-commerce supply or services provided by non-resident e-commerce operators to:
- Indian residents
- Users with Indian IP address
This levy is paid directly by the non-resident e-commerce operator.
Who is Required to Pay Equalization Levy?
Equalization Levy applies to:
- Indian businesses making payments to foreign digital service providers
- Non-resident e-commerce operators supplying goods or services to India
However, it does not apply if the non-resident has a permanent establishment in India.
Threshold Limit for Equalization Levy
- 6% levy applies only if annual payment exceeds ₹1 lakh to a non-resident service provider
- 2% levy applies if e-commerce operator’s annual turnover from India exceeds ₹2 crore
Due Date for Equalization Levy Payment
- Levy must be deposited by the 7th day of the following month
- Annual statement in Form 1 must be filed on or before 30th June of the next financial year
Late payment attracts interest and penalties.
Penalty for Non-Compliance
Non-compliance may result in:
- Interest at 1% per month on delayed payment
- Penalty equal to the amount of levy
- Additional penalty for late filing of statements
Proper compliance is essential to avoid unnecessary financial burden.
Equalization Levy vs GST
- Equalization Levy is not GST
- GST applies to supply of services, while Equalization Levy applies to payments to non-residents
- Both can apply separately depending on transaction nature
Understanding the distinction helps in correct tax planning.
How Saving Mantra Helps with Equalization Levy Compliance
Saving Mantra provides complete support for Equalization Levy compliance, including:
- Applicability analysis
- Levy calculation and payment
- Filing of Form 1
- Advisory on cross-border digital transactions
- Ongoing compliance management
We ensure your business stays compliant and penalty-free.
Conclusion
Equalization Levy plays a crucial role in taxing digital transactions involving non-resident service providers. Businesses dealing with online advertising or foreign e-commerce platforms must understand its applicability and comply on time. With expert guidance from Saving Mantra, Equalization Levy compliance becomes simple and stress-free.
Disclaimer
This blog is for informational purposes only and does not constitute legal, tax, or professional advice. Provisions relating to Equalization Levy are subject to change based on amendments in tax laws. Readers are advised to consult qualified tax professionals before taking any action.