Equalisation Levy

Equalisation Levy Audit Perspective S & Y Advisory Services Private Limited

Finance Act, 2016 • Chapter VIII of Finance Act, 2016 • Effective from 1st June, 2016 • Notification No.37/2016 [F.No.370142/12/2016-TPL] S & Y Advisory Services Private Limited

Applicability • Only on specified services – Online advertisement – Any provision for digital advertising space or any other facility or service for the purpose of online advertisement – Includes any other service as may be notified by the central government. No services notified S & Y Advisory Services Private Limited

Specified Services Online •Search Engine Marketing - Google Adwords Advertisement •Social Media - Facebook Advertisements •Online Marketing – Alibaba, ebay Specified Services •Banner Ads •LinkedIn Digital •Twitter Advertising •E Magazines – Scribed Space S & Y Advisory Services Private Limited

Applicability • Payer:- –Resident in India and carrying on business or profession –A non-resident having a Permanent Establishment in India • Payee:- –A Non-resident S & Y Advisory Services Private Limited

Applicability • Resident in India & Non-Resident – No specific definition in Chapter VIII of Finance Act, 2016 – Clause (j) of Section 164 gives reference to Income-tax Act, 1961 – Section 6 speaks about resident or non- resident status S & Y Advisory Services Private Limited

Applicability • Permanent Establishment (PE) – Inclusive definition – A fixed place of business through which the business of the enterprise is wholly or partly carried on – Double Tax Avoidance Agreement (DTAA) – DTAA available country wise – Non-resident country’s DTAA needs to be referred S & Y Advisory Services Private Limited

Applicability • Payer making payment to Non-resident – Business man has to make payment to Non- resident – PE of Non-resident should make payment to Non-resident • Above payments only for specified service then Equalisation Levy will be applicable S & Y Advisory Services Private Limited

Non-Applicability Specified services provided by PE of Non-Resident Non-resident Permanent Establishment in India Invoice Provider Resident in Service Provider India S & Y Advisory Services Private Limited

Non-Applicability Payment not exceeded Rs.1,00,000 in a financial year to Non-Resident Nature Amount (INR) Applicability Single Bill 1,00,000/- No 10 Bills 11,000/- each Yes Yes Single Bill 99,057/- after deduction No of Equalisation Levy Yes Specified Service Fee AgreIenmvoeincteSPtaromvpidDeruty 95,000/- Specified Service Fee 6,000/- Travel Claim 95,000/- 6,000/- S & Y Advisory Services Private Limited

Non-Applicability Payment made to Non-resident for the purpose other than business / profession. Scenario Applicability No Advertisement for sale of property in India and Advertisement is provided by Facebook Yes Inc Specified service received by firm but payment made by partner and same is treated as drawings in the books of firms S & Y Advisory Services Private Limited

Examples Scenario Applicability No Purchase of Goods from Website and payment made to Non-resident Yes Assessee assessed under Section 44AD and No turnover not exceeded Rs.2 crores No Yes Purchase of space in e-journals for personal purpose Server space for storing data Server space for hosting advertisement S & Y Advisory Services Private Limited

Statutory Compliances • Deduction @ 6% • Remittance by 7th of subsequent month • Failure to deduct – to be remitted by payer • Grossing up can be done since same is claimed as expense • Returns - 30th June of subsequent year • Belated / revised return up to 2 years S & Y Advisory Services Private Limited

Statutory Compliances • Delay in remittance – interest @ 1% • Penalty:- – Failure to deduct = Equalisation Levy failed to deduct – Delay remittance = Rs.1,000/- day max up to Equalisation Levy – Delay/ failure to file = Rs.100/- day • Disallowance of expenditure – U/s 40(a)(ib) • To be reported in Clause 21(B)(iii) of Form 3CD S & Y Advisory Services Private Limited

Audit Approach • Potential Areas that may have transactions that are covered under Chapter VIII of Finance Act, 2016 viz., Equalisation Levy – Credit Card Payments – Foreign Currency Remittances – Reimbursement of Foreign Currency Expenditure S & Y Advisory Services Private Limited

Special Considerations • Purpose of payment – Specified Service/not? • To whom the payment is made – Resident/Non-Resident • Liability in Foreign Currency rather than payment in Foreign Currency S & Y Advisory Services Private Limited

Audit Methodology • Applicability of Transfer Pricing • Related Party Transactions • Notes to Accounts – Foreign Currency Outflow • Foreign Currency Fluctuation in P & L A/c • Seeking Representation from Management • List of Payments made – Payment made for settlement of Foreign Currency Liability – Invoices in Foreign Currency Liability S & Y Advisory Services Private Limited

Audit Methodology • Nature of each transaction having Foreign Currency Liability to be tested specifically • Identified transactions and conclusion drawn to be discussed with Team Leads • Foreign Currency Transactions to be given due weight age in course of vouching • Review of Bank Statements, Credit Card Statements, Reimbursement of Foreign Currency Claims, etc. S & Y Advisory Services Private Limited

Audit Methodology • GSTR 3B.3.1.(d) – 4.2 & 3, import of service RCM details and ITC details will help to identify the payments that may attract Equalisation Levy S & Y Advisory Services Private Limited

Audit Methodology • Filing of Form 15CA – Part D • Companies - Mandatory • Individuals – Upto $ 2,50,000 no Form 15 CA required S & Y Advisory Services Private Limited

Format Sl. Head of Expense Nature of Value in Value in No. Service Foreign Indian Currency Rupees •Details to be obtained invoice wise party wise S & Y Advisory Services Private Limited

Practical Challenges • Non-resident Company providing specified services and payment made to permanent establishment of Non-resident then Equalisation Levy will be triggered and not TDS U/s 195 • Non-resident Company providing specified services and payment made to agent of Non-resident then Equalisation Levy will be triggered and not TDS U/s 195 • Non-resident Company providing specified services and payment made to agent of Non-resident in INR then Equalisation Levy will be triggered and not TDS U/s 195 • Permanent Establishment providing specified services and payment made to Non-resident then provisions of TDS will be applicable and Equalisation Levy will not be triggered • ……, S & Y Advisory Services Private Limited

S & Y Advisory Services Private Limited

S & Y Advisory Services Private Limited