Offshore e-Commerce Firms With Permanent Establishment Are Exempt From Digital Tax

As per the recent clarification on the digital equalisation levy, the offshore e-commerce platforms that have a permanent establishment in India are exempt from the equalisation levy. Let us understand from the beginning of digital taxation in India.

During the introduction of digital platforms’ taxation in 2016, the “Equalisation Levy” of 6% was levied on specific services such as online advertisements or the provision of any online advertising space or any other facility related to online advertisements.

However, Budget 2020 has expanded the equalisation levy scope by including all the non-resident e-commerce operators providing online supply of goods or services to the Indian customers. 

The e-commerce operator was defined as-

1. A non-resident who owns or operates, or manages
2. A digital platform
3. For the sale of goods or provision of services or both electronically

The equalisation levy shall be levied at 2% on the amount of consideration received or receivable by an e-commerce operator. It shall be levied on the supply of goods or services made to the person resident in India or the person who buys the goods or services through an IP address located in India or a non-resident in specified circumstances.

In Budget 2021, further clarification is provided for the applicability of the equalisation levy. As per the amendment, the equalisation levy would apply to those supplies of goods or services if any transaction element is made online. Hence, the definition of e-commerce supply or services will now cover any of the below activities made online:

1. Placing of the purchase order
2. Acceptance of the purchase order
3. Acceptance of the offer for sale
4. Supply of goods or provision of services, wholly or partly
5. Payment of consideration

For the calculation of the equalisation levy, the entire value of goods or services should be considered.

Hence, a non-resident entity with annual revenues of more than Rs.2 crore provides the goods or services physically and not through a digital platform to the Indian customers, but receives online payments, has to pay the equalisation levy. 

However, as per the recent clarification, if the foreign e-commerce platforms with a permanent establishment in India or those paying income tax in India shall not be subject to 2% digital tax.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in