What is equalization levy

The equalization levy has introduced in India in 2006. The motive of this levy is to taxing the digital payments of India accruing to foreign companies basically this taxing motive is only aimed for the business to business transaction.
As we know India has a Traditional accounting system in which we don’t use to have taxing rule which can tax those payment before it’s accruing to foreign companies.
Let’s suppose if any Indian companies want to advertize their goods or serving on the social media platform like; – Face book, twitter, Instagram as these are the foreign companies, it will definitely charge for the advertisement on their application. So the equalization levy has only published for the purpose of taxing those payments which is making by the Indian companies to the foreign business for their service.

Let’s know about the applicability of equalization levy.

If we talk about equalization levy then it is comes into the Direct Tax, which is held on the time of payment to the service provider. So there are the two conditions in which any business are liable for the equalization levy.

  • the payment are making to the non-resident service provider.
  • If the payment are making to any non-resident service provider more than 1,00,000 in a financial year.

Know about the service which is covered under the equalization levy.

  • Online advertisement service is covered under the equalization levy.
  • Any space for digital facility or advertisement.

Rate of tax under the equalization levy.

The rate of tax is the 6% of whole consideration to be paid.

For example:- ABC enterprises want to advertize on the facebook for the expansion of the business. So the business have to pay 1,50,000 to the facebook for the service, so at the time of payment to the facebook ABC enterprises have to deduct TDS @ 6%.

The total calculation will be:-
Rate of service = 1, 50,000 Rs
6% of 1, 50,000 = – 9,000 Rs
1, 41,000 Rs (Amount to be paid after deduction of TDS 6%)

Penalty on the failure of payment

When the equalization levy will not deducted then penalty will be equal to the amount of levy failed to be deducted along with the interest.

If the payment has delayed then the 1% of the outstanding levy interest will be charged from the payee.

If the payment has delayed then the 1% of the outstanding levy interest will be charged from the payee.
When the equalization levy deducted but not paid then the penalty will be equal to the INR 1000/day

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