India has expanded its regime of equalization levy to cover 'e-commerce supply' by non-resident electronic commerce operators (ECOs) having operations related to India. In India's recently announced Union Budget, there are proposed amendments to provisions relating to Equalisation levy (EL) under the Income-tax Act, 1961 (IT Act) and the Finance Act, 2016 (FA16).


One of the most significant amendments proposed to clarify the scope of EL is introduction of definitions of the term 'online sale of goods' and 'online provision of services'. At present, the terms ECO and 'e-commerce supply' have been defined, and these terms, in turn, use the terms 'online sale of goods' and 'online provision of services', which are not defined. This earlier led to an ambiguity as regards the scope of EL. The new proposed definitions define 'online sale of goods' and 'online provision of services' to include one or more of the following activities taking place online:

  • Acceptance of offer for sale; or
  • Placing the purchase order; or
  • Acceptance of the Purchase order; or
  • Payment of consideration; or
  • Supply of goods or provision of services, partly or wholly.

Hence, now, undertaking any one of these activities on a digital or electronic facility or platform owned, operated or managed by a non-resident may likely trigger the levy of EL. The proposed definitions may likely lead to covering within the ambit of EL various businesses which may traditionally not be understood to be e-commerce businesses.


The above issue is more worrisome especially since the term 'owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services' used in the definition of the term ECO is yet to be clarified, and the possibility of the Revenue Department seeking to bring in even e-mail ordering within the definition of ECO cannot be ruled out. Hence, it is hoped that the legislature may bring more clarity to the same through further amendments/clarifications.


EL is to be discharged by the ECO at the rate of 2% of the 'amount of consideration received or receivable by an e-commerce operator' from e-commerce supply or services made or provided or facilitated by it. However, the manner of determination of such 'consideration' is at present ambiguous and subject to interpretation. This leads to difficulties especially in determining the amount which should be taxed in respect of ECOs which merely facilitate a supply (market-place e-commerce).

The term 'consideration received or receivable from ecommerce supply or services consideration' has now been proposed to be defined to include:

  • 'consideration for sale of goods irrespective of whether the e-commerce operator owns the goods;
  • consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator'.

In terms of this newly proposed definition, there is an attempt to link the term 'consideration' to the value of underlying supply of goods and services facilitated through e-commerce, irrespective of whether such goods/services are owned/provided by the ECO. This indicates that the intent of the law is to levy EL on the entirety of consideration which is paid by the person located in India and not just the amounts which are finally earned (received) by the ECO.


For example, in an online accommodation aggregator model (bookings of room made outside India by a person located in India), while the ECO collects the entirety of accommodation amount (charged by the hotel) from the customer, it retains only a fixed percentage thereof (as its income/consideration) while remitting the remainder to the accommodation service provider. In such a case, based on the present provisions, a view could be taken that since only the amount which is retained by the ECO is the consideration received / receivable by it qua that supply. However, the proposed definition for the term 'consideration' would not permit such a view. The online accommodation market-place will post the amendment, be required to pay an EL of 2% on the entirety of the amounts collected by it, including the amounts which will subsequently be remitted to the service provider. Hence, presuming the ECO retains 10% of the amounts collected by it, in effect an EL of 20% will be charged on the actual consideration earned by it.


While the above appears to have resulted in an administrative ease, the potential repercussions on the global tax policy seem to not have been duly considered. From another perspective, in case the ECO seeks to share the burden of the EL with the actual service provider, it would effectively lead to India taxing the income arising from renting of immoveable property, which is neither located in India nor is such income earned by a person resident in India. The fact that a credit of the EL may not be available in the ECO/ supplier's jurisdiction, further compounds the issue and will likely lead to double taxation.


By way of parallel proposals to amend Section 10(50) of the IT Act and Section 163 of FA16, it appears that the issue of an overlap between EL and royalty or fees for technical services (FTS) is addressed. On the one hand, it is proposed to be clarified that exemption under section 10(50) will not apply for royalty or fees for technical services which is taxable under the IT Act read with Double Taxation Avoidance Agreement (DTAA). On the other hand, a proviso has been proposed to be added to Section 163 of the FA16 to clarify that any income which is taxable as royalty or FTS under the IT Act is excluded from the scope of EL, fixing a loophole which could have led to double taxation.


Section 10 of the IT Act deals with 'incomes not included in total income'. Section 10(50) excludes 'specified services' under FA 16 and 'income from any e-commerce supply or services', which would be leviable to EL, from the scope of 'income' under IT Act. However, perhaps on account of a legislative oversight, such exclusion covers only 'e-commerce supply or services made on or after the 1st day of April, 2021' even while the levy was effective from 1st April, 2020, thereby leading to a potential double taxation. An amendment has now been proposed to rectify this date to 1st day of April 2020'. This is a welcome step to remedy the legislative oversight in this regard.


The proposals addressing overlap between EL and royalty/FTS and rectifying date under Section 10(50) are steps in the right direction, providing much needed clarification in these areas. However, the proposed definitions of 'online sale of goods', 'online provision of services' and 'consideration', while definitely clarifying the position in law, will have significant ramifications, requiring businesses to carry out a holistic review of their operations to be sensitive of the additional tax costs.

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