India Equalization Levy
U.S. higher educational institutions need information on the taxes they are liable to pay while offering online education to students in India.
Exploiting gaps and mismatches in country tax rules to avoid paying taxes is a tax planning strategy called base erosion and profit shifting (BEPS). Over 135 countries and jurisdictions within the OECD/G20 Inclusive Framework on BEPS collaborated on implementing measures to tackle tax avoidance, improve the coherence of international tax rules, and ensure a more transparent tax environment.
The Equalization Levy (EL) enacted by India was one of options in the BEPS Action 1 Report to deal with the tax challenges arising from the digitalization of the economy. India was the first country to introduce EL in 2016. At first, EL 2016 was only introduced in respect to specific advertising services. However, in 2020, the scope of EL was expanded to cover e-commerce transactions as well
EL2020 caught businesses unaware since it was not a part of the original Union Budget 2020-21 proposals. The Finance Bill, 2020 approved in both houses of the Parliament extended the scope of EL. The bill introduced a two percent EL on online sales of goods and online provision of services in India by overseas e-commerce operators. The EL2020 went into effect on April 1, 2020 during the height of the COVID-19 pandemic shutdown. It has had wide-ranging and unintended coverage.
The term ‘e-commerce operator’ is defined as “a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both.
Considering the broad definition of an ecommerce operator, international education services may need to be tested for EL implications, considering that they render online services to Indian residents through a digital platform owned, managed or operated by them. Universities should therefore factor in EL implications while planning to render online services, if their turnover from India is in excess USD 267,000 approx. The EL is applicable to both B2B and B2C transactions.
Any services or supplies offered online may be subject to the levy including educational offerings such as online education, online tests, online workshops and training programs, research papers for download through online portals and online subscription to educational material including books/ journals. Additionally the sale of goods/services through online marketplaces owned by other service providers; the sale of goods/services through e-portals; online streaming, etc.
On July 3, the Income-tax Department modified the challan (the Income Tax Department document for filling and paying taxes) relating to payment of Equalization Levy (ITNS 285) to enable the payment of the first instalment by non-resident e-commerce operators.
The revised challan also makes it mandatory to mention the Permanent Account Number (PAN), thereby implying that a non-resident e-commerce operator will either need to use an existing PAN or obtain a new PAN, if not already holding one, to be in compliance. The deadline for the first quarter’s instalment was July 7, 2020.
The short deadline made it impossible for non-resident e-commerce operators to obtain a PAN and make payments. In addition to this, the modified challan accepts the payment only from local Indian banks which again makes it difficult for foreign institutions to make payments. These irregularities have made it difficult for foreign ecommerce operators to meet the deadline leading to interest payments.
All foreign educational institutions should comply with the EL as there are interest and penalties associated with non-compliance. Services can be tracked by remittances, IP address etc.
Because of the ambiguity many educational organization forced to hold online classes due to the COVID-19 pandemic, online services and private tax consultants are coming together to address the concerns with the Indian Government including shortened time frame to be compliant.
Contact:
Noella Monteiro, Commercial Advisor
U.S. Commercial Service - Mumbai, India
Email: Noella.Monteiro@trade.gov
KPMG in India / Nishith Desai Associates