Taxation of e-commerce transactions in India

CA SAURABH PANWAR
Tax Partner Manager – Direct Taxes 
SNR & Company Chartered Accountants, India

In India and globally, the supply and procurement of goods and services digitally have undergone exponential growth with the expansion of information and communication technology. Indeed, e-commerce is now growing significantly faster than the global economy. The Indian tax authorities are constantly taking stock of new developments and introducing necessary changes to the Indian taxation laws to ensure that digital transactions are taxed appropriately. One such change is the levy of tax on non-resident e-commerce operators, effective from 1 April 2020.

The Finance Act, 2016 initially provided that a resident carrying on a business/profession, or a non-resident having a permanent establishment (PE), in India shall deduct an equalisation levy of 6% (the ‘2016 Levy’) on the amount paid/payable for certain specified services (e.g. advertisement) to a non-resident service provider, if the aggregate amount of consideration for the specified service exceeded INR 100,000 in a financial year.

Effective from 1 April 2020, the Finance Act, 2020 has introduced a new levy of 2% on the e-commerce operator on receipt of consideration for online sale of goods or services, made or provided or facilitated by it (on an amount of at least INR 20 million in aggregate) from:

• An Indian resident
• A person using an Indian IP address when purchasing such supplies/services
• Non-residents only in the following cases:
• Sale of advertising – targeting an Indian resident or Indian IP user
• Sale of data – collected from an Indian resident or Indian IP user.

Provisions in brief

Definitions

• E-commerce includes:
• Online sale of goods owned by the e-commerce operator
• Online provision of services provided by the e-commerce operator
• Online sale of goods or provision of services, or both, facilitated by the e-commerce operator.
• An e-commerce operator is a non-residentwho owns, operates or manages a digital/electronic facility or platform for online sale of goods or online provision of services or both; but does not include an e-commerce operator having a PE in India and supplying goods or services effectively connected with such PE, or where such a transaction is liable for the 2016 Levy.

Compliances for non-resident e-commerce operators

Every e-commerce operator will be required to make equalisation levy payments quarterly, as follows:

Quarter ending	Due date
30 June	7 July
30 September	7 October
31 December	7 January
31 March	31 March

Availability of tax credits

In general, non-residents paying taxes in India could obtain tax credits for these in their country of residence under the relevant DTAA. The equalisation levy has been introduced under a separate legislation rather than under the Income Tax Act. Thus, determining the availability of credit for the equalisation levy in the residence country is going to be challenging.

Conclusion

The new equalisation levy on e-commerce operators could impose on them a significant compliance burden and additional costs. The peculiarity of these businesses in earning millions of revenues without any physical presence has certainly been a matter of concern for countries with a large customer/IP user base. Modern ways of doing business do need such taxes, and all these measures are simply India’s response to the changing times.