Why is the Equalisation Levy Unfair?

More on more advertising is happening online which was earlier offline. sell business

Platforms such as Fb, Google, Instagram and Linkedin are commonly used by Indian businesses. These companies that are located out of India are exempted from paying any income tax as do not have permanent establishments in the country but still generate great revenue from India. With these developments, the Government also put together a set of new tax rules and put something known as ‘Equalization levy’ buy business

Let's first understand what Equalisation Levy is all about. sell business

Brought into the Indian taxation system in 2016, the Equalisation Levy is a form of direct tax imposed on non-resident service providers when the payments made to them cross Rs. 1,00,000/- (per year). sell business india

This new equalisation tax then meant that giant online service providers (that don’t have a permanent establishment in India) such as Google or Facebook selling its services worth Rs. 1,00,000/- or more to a consumer (service user, in this case) per year, the consumer has to deduct an equalisation levy of 6% on the total invoice value and then deposit that amount with the Income Tax Department of India. buy business india

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IT IS A KIND OF TDS ON ADVERTISING ONLINE- businesses to buy in india

Just like SME’s deduct TDS before making payments to online vendors, this needs to be done for advertising on Fb, Google, Instagram, Linkedin etc.

Only difference is these foreign companies have no clarity about this and charge you mostly on credit card the full amount businesses for sale in india

Thus this 6% becomes an additional cost to the company.  buy existing business in india

To understand the tax a little better, let’s look at an example. Priya advertised on Facebook to popularize her interior décor business. For the year 2017-2018, (after the Equalisation Levy was introduced), she has to pay a sum of Rs. 2,00,000/- to Facebook for using Facebook’s advertising service in that year. 

According to the tax rate of 6%, she would be billed Rs. 2,12,765.9/- by Facebook. However, Priya would now deduct the tax at source (TDS), which would be the additional Rs. 12, 765.9/- and then pay off the rest to Facebook. Let’s assume that Priya made the payment on 20th February, she will then have to deposit the tax with the authorities by 12th March 2019 and file the statement on or before 30th June 2019. sell existing business in india

In case she fails to do so, an extra 1% interest is levied, for every month that precedes the due date. In another scenario where she fails to file the statement of compliance, she would be liable to pay Rs.100 per day for each day that the non-compliance continues. buy and sell business in india

In a nutshell: buy a business in mumbai

Equalisation levy of 6% is to be withheld by an Indian resident engaged in business or profession against yearly payment of more than Rs.1 lakh in aggregate to non-resident entities for specific digital services. These services are related to online advertisements only. Failure to pay or delay in payment can attract penalties and punishments. buy a business in delhi

What does this mean for Indian Entrepreneurs? buy a business in gujarat

As you might have already realized, the Equalization Levy is unfair! buy a business in bangalore

While the taxation policy seems very clear, it has also turned out to be unfair to Indian consumers. According to the policy, Indian consumers (service users) are supposed to deduct the equalization levy (TDS) before making payments to the service provider, which in this case could be the likes of Facebook or Google. However, Facebook does not permit the service user to deduct the levy amount, making him bear the cost of the added 6% as they are the end-users (according to the policy, the user is supposed to cut TDS). Usually, with TDS, the vendor is supposed to reimburse the amount that has been deducted, but due to the foreign nationality of these vendors (service providers), this reimbursement is impossible. Another glitch here is that most users pay via credit cards or direct debit options, making it even more difficult to address the issue. Also, taxpayers cannot reveal the tax expense of the additional 6% as getting cut from their end as this would inflate their tax expenses. sell my business in mumbai

Unfortunately, in this tiff between foreign service providers and the Indian tax regulations, it’s the Indian business owner who suffers the most, bearing an additional 6% charge on their regular advertising spend on these platforms.


Effect on SMEs & Start-ups

Maximum ill-effects of the Equalisation Levy can be seen on SMEs, start-ups or any companies that are working with tight budgets. Most of these business owners would either resort to cutting down their ad. expenditure on Facebook (pulling their business down, compared to bigger players) or just paying off the Equalisation Levy, which in no way is benefitting their business directly. businesses to buy in mumbai

Solution businesses to buy in bangalore

Indian business owners need to voice their opinions about the perils of the equalization levy to the Indian government. Advertising giants like Facebook are merely taking undue advantage of Indian service users while remaining unaffected by the amendments or taxation policy. The government needs to wake up to either take regulatory action against Facebook or make necessary changes to the rules of the Equalisation Levy in a way to ensure fair treatment to the users. businesses for sale in mumbai

It’s time we all come together to stop the exploitation of the Indian business owner by the hands of the government and foreign service providers!

Let me know your thoughts about Equalisation Levy in the comments below! business opportunities in india

For any business-related queries, reach out to sonakshi@kapso.in