The Finance Bill, 2021 proposes to clarify and rationalise Equalisation Levy provisions applicable to e-commerce supply of goods or services.

In April 2020, the provisions of 2% equalisation levy (EL) were introduced for taxing digital transactions and the consequent income earned by foreign e-commerce companies in India. At the time, it was specified that EL would not be levied on the business income earned by a non-resident e-commerce operator from supply of service which is effectively connected to its permanent establishment (PE) in India. However, there was ambiguity on the scope of EL regarding other income streams of a non-resident e-commerce operator such as royalty and fee for technical services.

Another issue that arose was in relation to the scope of EL on transactions which were conducted partly online and partly offline. Additionally, there was a mismatch between the effective date of provisions of EL i.e. 1 April 2020 and the exemption from income tax provisions to e-commerce transaction to which EL applied which started from 1 April 2021, thereby resulting in double taxation for such transactions for a period of one year.

These issues have been resolved through proposals presented in the Finance Bill, 2021 (Bill) as discussed below.

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