What the courts have decided on section FA 2016 s.164, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Zoho Corporation Private Limited v. Deputy Commissioner of Income Tax — no equalisation levy on an Indian parent's reimbursement to its US subsidiary of Google advertising costs, and the corporate veil cannot be pierced to create the charge
High CourtHelps taxpayerNo later treatment found
My Indian client reimburses its overseas subsidiary for online advertising the subsidiary bought abroad. The department says the levy is payable because the money really came from India. Is a reimbursement within the charge?
It is not. The equalisation levy is charged by Chapter VIII of the Finance Act, 2016 and not by the Income-tax Act, and on a textual reading of sections 164 and 165 the charge falls on consideration for a specified service received by a non-resident FROM an Indian resident carrying on business. Where a US subsidiary bought Google advertising from Google USA and the Indian parent merely reimbursed it, the service was provided by one non-resident to another and the levy cannot be imposed on the Indian parent unless reimbursement is itself a specified service — and it is not. The Committee on Taxation of E-Commerce had expressly recommended that reimbursements be brought within the levy, and Parliament did not do it. The Court also refused to pierce the corporate veil, the subsidiary having been incorporated and reimbursed in this way long before the levy existed, and held that statements recorded in a section 133A survey could not fix the liability.
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Statutory position — s.165A of the Finance Act, 2016: the two per cent levy on e-commerce supply or services, the two crore threshold, the specified circumstances, and the 1 August 2024 cut-off
CBDT Circulars & InstructionsCuts both ways
A foreign platform sold to Indian customers. Was it liable to the two per cent equalisation levy on its own receipts, what was the threshold, and when did that levy end?
The two per cent levy is charged by section 165A of the Finance Act, 2016 — again, not by the Income-tax Act. It was inserted with effect from 1 April 2020 and charges two per cent of the consideration received or receivable by a NON-RESIDENT e-commerce operator from e-commerce supply or services made or provided or facilitated by it to a person resident in India, to a non-resident in the 'specified circumstances', or to a person who buys using an internet protocol address located in India. It is not charged where the operator has an Indian permanent establishment with which the supply is effectively connected, where the six per cent levy under section 165 is leviable, or where the operator's sales, turnover or gross receipts from e-commerce supply or services are less than TWO CRORE RUPEES during the previous year. Sub-section (4) ends the charge: it does not apply to consideration received or receivable on or after 1 AUGUST 2024.
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Statutory position — s.165 of the Finance Act, 2016: the six per cent equalisation levy on online advertisement, the one lakh rupee threshold, the three exclusions, and the 1 April 2025 cut-off
CBDT Circulars & InstructionsCuts both ways
My client paid a foreign platform for online advertising. Was it required to withhold six per cent equalisation levy, what was the threshold below which it was not, and from when did that levy stop?
The six per cent levy is charged by section 165 of the Finance Act, 2016 — it is not in the Income-tax Act, and a reader who looks for it there will not find it. It is charged on the amount of consideration for any specified service received or receivable by a NON-RESIDENT from (i) a person resident in India carrying on business or profession, or (ii) a non-resident having a permanent establishment in India. It is not charged in three cases: where the non-resident providing the service has a permanent establishment in India and the service is effectively connected with it; where the aggregate consideration for specified service received or receivable in a previous year by that non-resident from that payer does not exceed ONE LAKH RUPEES; and where the payment is not for the purposes of carrying on business or profession. Sub-section (3) ends the charge: it does not apply to any consideration for any specified service received or receivable by a person on or after 1 April 2025.
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Statutory position — the equalisation levy is charged by Chapter VIII of the Finance Act, 2016 and not by the Income-tax Act: what the Chapter contains, when it commenced, and the two different dates on which the two levies stopped
CBDT Circulars & InstructionsCuts both ways
A notice has come in demanding equalisation levy, and I cannot find the levy anywhere in the Income-tax Act. Which statute is it actually in, what machinery governs assessment and appeal, and has it not been abolished?
The equalisation levy is not in the Income-tax Act, 1961 at all. It is charged by Chapter VIII of the Finance Act, 2016 (Act 28 of 2016), which is a self-contained code running from section 163 to section 180 with its own extent and commencement provision, its own definitions, two charging sections, its own collection, statement, assessment, rectification, interest, penalty and appeal provisions, its own rule-making power and its own removal-of-difficulties power. Chapter VIII came into force on 1 June 2016, that date having been appointed by Notification No. S.O. 1904(E) dated 27 May 2016 issued under sub-section (2) of section 163, and the Equalisation levy Rules, 2016 were notified the same day by S.O. 1905(E) under sub-section (3) of section 179. Both levies have since been switched off, on DIFFERENT dates: the two per cent levy on e-commerce supply or services does not apply to consideration received or receivable by an e-commerce operator on or after 1 August 2024 (section 165A(4)), and the six per cent levy on specified services does not apply to consideration for specified service received or receivable on or after 1 April 2025 (section 165(3)).
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
