Equalization Levy

Introduction

• Equalization levy was introduced in the Finance Act, 2016 as a measure of tax evasion. It is levied on foreign companies over cross-border digital transactions. 
• It is intended to address the disparity in tax treatment between domestic companies and foreign companies that are able to earn without being subject to income tax on those profits, neither in a state where the premiums are collected nor in the state of residence.

Characteristics of Equalization Levy

• Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. 
• The two conditions to be met to be liable to equalization levy:

1. The payment should be made to a non-resident service provider.
2. The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

• Currently, not all services are covered under the ambit of equalization Levy. Online advertisement, any provision for digital advertising space or facilities/ service for the purpose of online advertisement are covered under equalization levy.
• Currently, the applicable rate of tax is 6% of the gross consideration to be paid.