Here’s a detailed breakdown of the collection and recovery of Equalisation Levy (EL) under Sections 166 and 166A of the Finance Act, 2016, along with key compliance requirements and penalties:
1. Collection and Recovery under Section 166 (6% Levy on Specified Services)
Applicability:
- Applies to payments for specified services(e.g., online ads, digital advertising space) to non-residents without a Permanent Establishment (PE) in India.
Key Provisions:
- Deduction & Payment:
- The payer(resident Indian or NR with PE in India) must deduct EL at 6% of the consideration.
- Deposited to the Central Government by the 7th day of the following month(e.g., levy deducted in June must be paid by 7th July).
- Interest for Delay:
- 1% per monthon late payments .
Penalties:
- Failure to Deduct: Penalty equal to the unpaid levy amount.
- Failure to Deposit After Deduction:
- Penalty of ₹1,000/day(max: unpaid levy amount) + interest.
2. Collection and Recovery under Section 166A (2% Levy on E-Commerce)
Applicability:
- Covers non-resident e-commerce operators(e.g., Amazon, Netflix) with no PE in India and turnover ≥ ₹2 crore/year.
Key Provisions:
- Quarterly Payment Deadlines:
| QUARTER ENDING | DUE DATE |
| 30 June | 7 July |
| 30 September | 7 October |
| 31 December | 7 January |
| 31 March | 31 March |
- Interest for Delay: 1% per monthon overdue amounts.
Penalties:
- Non-Payment: Penalty equal to the unpaid levy.
- Late Filing of Statement (Form 1): ₹100/dayuntil compliance.
3. Common Compliance Requirements
- Annual Statement (Form 1):
- Filed by 30th Juneof the next financial year for both Sections 166 and 166A.
- Revised statements can be filed within 2 yearsof the original due date.
- Processing by Tax Authorities:
- Intimation of dues/refunds issued within 1 yearof filing.
4. Exemptions and Exclusions
- No EL if:
- The non-resident has a PE in Indiaand services are connected to it.
- Payments are for personal useor below ₹1 lakh (Section 166) / turnover < ₹2 crore (Section 166A) .
5. Recent Updates
- The 6% levy on online adsis proposed to be abolished from April 2025 .
- The 2% levy on e-commerceremains applicable unless covered under future OECD Pillar 1 reforms
6. Key Differences Between Section 166 and Section 166A
| ASPECT | SECTION 166 | SECTION 166A |
| Type of Levy | 6% on specified services (online advertising) | 2% on e-commerce supply or services |
| Responsibility | Payer deducts and deposits the levy | E-commerce operator pays the levy directly |
| Threshold | ₹1 lakh per financial year | ₹2 crore per financial year |
| Payment Frequency | Monthly (by 7th of next month) | Quarterly (July 7, Oct 7, Jan 7, Mar 31) |
| Compliance | Form 1 by June 30 (by payer) | Form 1 by June 30 (by e-commerce operator) |
| Default Consequences | Disallowance of expenditure, interest, penalties | Interest, penalties, asset recovery |
7. Additional Notes:
- Interest and Penalties: Both sections impose interest under Section 170 for delayed payments and penalties under Section 171 for non-compliance, ensuring strict adherence to the levy’s collection and recovery process.
- Recovery Mechanism: The government can recover unpaid amounts as arrears of tax, using powers similar to those under the Income Tax Act, 1961, although the Equalisation Levy is a separate tax.
- Objective: These provisions ensure effective collection of the Equalisation Levy from non-residents, addressing the challenges of taxing digital transactions where physical presence is absent.
