Page 71 - DHC Budget Book 2021-22 Final

— Sec. 164 of Finance Act 2016 amended to provide that online sale of goods/ online provision of services, as envisaged for EL 2.0, shall include one or more activities such as placing of order, acceptance of offer, acceptance of purchase order or payment of consideration;
— Sec. 165A of Finance Act, 2016 is proposed to be amended to provide that for the purpose
of charging EL2.0, consideration received or receivable from e-commerce supply or services shall include consideration for sale of goods/ services irrespective of whether e-commerce operator owns such goods or provides or facilitates such services;
— Sec. 10(50) is proposed to be amended to provide that the exemption in respect of EL2.0 shall be available in respect of income arising from any e-commerce supply or services made or provided or facilitated on or after 01-04-2020 instead of 01-04-2021.
Comments
— The income from online services/right to use software etc. may be taxable as “Royalties or Fees for Technical Services” under the Act/ read with the DTAAs as well as within the scope of EL2.0. Thus, there is a possibility for the taxpayers to pay equalization levy @ 2% on such “Royalties or Fees for Technical Services” and claim exemption u/s 10(50)
of the Act [Royalties or FTS being taxable @ 10%/15%/20% as may be applicable]. The same was not in line with the underlying objective of introduction of equalization levy. Thus, to plug the loophole, amendment has been proposed that Equalization Levy shall not be applicable on Royalty or FTS taxable under the provisions of the Act read with DTAAs and the said income shall also be outside the ambit of exemption u/ s10(50).
— In case where the income where the income
is not chargeable to tax as Royalties/ Fees
for technical services and is not effectively connected to a Permanent Establishment, EL2.0 may still be applicable even after the proposed amendment;
— It is also proposed to clarify as to which online activities shall be included in the expression ‘Online sale of goods/online provision of services’. With the proposed clarification, the scope of EL2.0 seems to have been broadened. Thus, even though only part of activities [such as online placing of order or online payment of consideration] is performed online, the same would trigger EL2.0 despite the fact that the substantial transaction for sale of goods or provision of services is not undertaken through online platform.
— Based on the existing provisions, there was an ambiguity as to whether EL2.0 is required to be discharged by e-commerce operators on the entire consideration for online sale of goods or services or only the portion of service income or commission income earned by e-commerce operators. Thus, to plug the loophole, an amendment is proposed to include the entire consideration on online sale of goods/ services within the scope of EL2.0 irrespective whether e-commerce operator owns such goods or provides or facilitates such services.
— All the amendments have been proposed on
a retrospective basis which would lead to challenges in applicability of the same from legal and practical perspective.
— The U.S. administration had announced initiation of investigation u/s301 of the U.S. Trade Act, 1974 against the taxation on digital services adopted or under consideration by countries, including the Equalization Levy applied by India. The office of USTR on 6th Jan 2021 released
its findings and concluded that the Equalization Levy imposed by India is discriminatory and restricts US commerce. The Government of India will examine the determination / decision notified by the U.S. in this regard, and would take appropriate action. Thus, considering the present situation, proposal amendments includes expanding the scope of the Equalization Levy/ consideration and amendments on retrospective basis is likely to further agitate the matter.
Content International Taxation and Transfer Pricing Direct Tax 69