The government on Monday clarified that transactions involving royalty/ technical services fee would be taxable under income-tax and not be liable for equalisation levy that is paid by foreign companies for conducting business with Indian parties, while explaining what would construe online sale of goods or services.
The Union Budget also clarified that transactions taxable under income-tax are not liable for equalisation levy. In the past, there have been concerns on the interpretation of the equalisation levy provisions.
"It is seen that there is need for some clarification to correctly reflect the intention of various provisions concerning this levy," according to the explanatory memorandum in the Budget 2021-22.
It further said: "In order to provide certainty, it is being expressly clarified that transactions taxable under income-tax are not liable for equalisation levy. Further, it is also proposed to clarify regarding the applicability of equalisation levy on physical/offline supply of goods and services".
Neeru Ahuja, partner at Deloitte India, said the equalisation levy (EL) law -- brought into force on April 1, 2020 -- needed clarity in regard to payments made by Indian companies to non-residents for royalty/technical services fee that are already covered under the Income Tax Act and subject to tax in India.
"It was not clear whether such payments would be liable to tax under the EL law or I-T Act or both. Hence, the government has today clarified that such payments would continue to be taxable only under the I-T Act and no further tax would be imposed under the EL tax law," Ahuja said.
Shefali Goradia, Partner at Deloitte India, said the Budget has "corrected the anomaly of mismatch in the effective date of income-tax exemption with applicability of EL retrospectively".
"So it is now clear that there will be a corresponding exemption from income-tax if equalisation levy is payable. Although, levy will not apply on receipts subjected to royalty/FTS taxation in India. They will continue to be taxed at 10 per cent," Goradia said.
She added that “online sale of goods or services” have been defined to include any case where either a purchase order has been placed online or an offer is accepted online or even where a payment is accepted online.
"This may cover all e-commerce transactions in their broadest sense without exemption for intragroup transactions. Many European jurisdictions provide such exclusion under their DST laws," she said.
EL is charged at 2 per cent of the amount of consideration received or receivable by an e-commerce operator.
The document has provided clarity on definition of e-commerce supply or service saying these will include one or more of online activities, including acceptance of offer for sale; placing the purchase order; acceptance of the purchase order; payment of consideration; and supply of goods or provision of services (partly or wholly).
This amendment will take effect from April 1, 2021, and will accordingly apply to the assessment year 2021-22 and subsequent assessment years, it added.
The clarifications also stated that the consideration received or receivable from e-commerce supply or services will entail those from sale of goods/services, irrespective of whether the e-commerce operator owns the goods/services.
"Clarifications as regards what constitutes online sale of goods and online provision of services have also now been provided," Ritesh Kumar, partner at IndusLaw, said.
