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No equalisation levy on goods sourced from India: Finance Minister

Finance Minister Nirmala Sitharaman on Tuesday clarified that foreign companies will not have to pay equalisation levy on goods that are sourced from India. “Through the amendment I am moving today, I intend to clarify that equalisation levy is not applicable on consideration for goods which are owned by Indian residents,” Sitharaman said in the Lok Sabha.

The aim of the equalisation levy is to create a level-playing field between Indian businesses who pay tax in India and foreign e-commerce companies who do business in India but do not pay income tax, Sitharaman said. If foreign e-commerce operators do pay income tax in India, then the levy is not applicable to them, and there is “no extra burden on any company,” she added.

She was responding to concerns raised by BSP MP Ritesh Pandey on the Finance Bill 2021, which will implement the proposals and announcements made in the Union Budget 2021-22. The bill was passed in the Lok Sabha, and will now be sent to Rajya Sabha and eventually to the president for it to become law.

The digital tax, aimed at foreign e-commerce companies, will no longer apply to goods and services owned and operated by Indians and transacted over an overseas e-commerce platform. If goods and services on a foreign marketplace are owned or provided by an Indian resident, they will be out of the purview of the levy.

The Equalisation Levy, rolled out on April 1, 2020, applies only to non-resident companies with annual revenues in excess of Rs 2 crore and covers online sales of goods and services to Indians. In February, when the Budget 2021-22 was presented, the government had clarified several provisions concerning equalisation levy and expanded the definition of e-commerce companies.

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  1. Royalty fee or technical services excluded: Portions of a transaction corresponding to royalty payments and fees for technical services (FTS) would not attract a levy, but will instead be taxable under income tax.
  2. Expanded definition of e-commerce services: A new clause is being added to define the phrases “online sale of goods” and “online provision of services”: they shall now include either one or more of the following
    • Acceptance of offer of sale
    • Placing the purchase order
    • Acceptance of the purchase order
    • Supply of goods or provision of services, partly or wholly

Both changes were brought into effect retrospectively from April 1, 2020.

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