Interest on Delayed Payment of Equalisation Levy [Section 170]

Here’s a detailed explanation of Section 170 (Interest on Delayed Payment of Equalisation Levy) under the Finance Act, 2016:

1. Overview of Section 170

Section 170 imposes simple interest at 1% per month (or part of a month) on delayed payments of Equalisation Levy (EL) by assessees or e-commerce operators who fail to deposit the levy within the due dates specified under Sections 166 or 166A.

2. Applicability

• Trigger: Interest applies if EL is not credited to the Central Government’s account by the due date:
  • For 6% Levy (Section 166): By the 7th day of the next month(e.g., payment for June is due by July 7).
  • For 2% E-commerce Levy (Section 166A): By the quarterly due dates(e.g., July 7 for Q1 ending June 30).
• Calculation: Interest is charged on the outstanding EL amountfor each month (or partial month) of delay.

3. Key Provisions

• Interest Rate: Fixed at 1% per month, compounded for partial months (e.g., 15 days = 1 month).
• Liability: Applies to:
  • Assesseesdeducting EL under Section 166 (e.g., for online ads).
  • E-commerce Operatorsliable under Section 166A (e.g., Amazon, Netflix).
• No Exemptions: Interest is mandatory, even if the delay is unintentional.

4. Interaction with Penalties

• Additional Penalties: Delayed payments may attract:
  • Penalty under Section 171: Up to 100% of the unpaid levyfor non-deduction or non-payment.
  • Daily Penalty: ₹1,000/day (capped at the unpaid EL amount) for failure to deposit after deduction.
• Disallowance of Expenses: Under income tax, expenses may be disallowed if EL is not deducted/deposited.

5. Practical Example

Scenario: An Indian company fails to deposit ₹1.2 lakh (6% EL) for March 2025 by April 7, 2025, and pays it on June 10, 2025.

• Interest: 1% × 3 months (April–June) = ₹3,600.

6. Compliance Tips

• Timely Payments: Use Challan ITNS 285for deposits.
• Monitor Deadlines: Quarterly due dates for e-commerce operators differ from monthly deadlines for specified services.
• Documentation: Maintain records of EL deductions and payments to avoid disputes.

7. Recent Updates

• The 6% levy on online adsmay be abolished from April 2025, but Section 170 remains applicable for pending dues

8.  Period of Interest:

• Interest is calculated from the due date for depositing the levy until the date of actual payment.
• For the 6% levy (Section 165):
  • The due date is the 7th of the following month in which the levy was deducted (e.g., levy deducted in April must be deposited by May 7).
• For the 2% levy (Section 165A):
  • The due date is quarterly: July 7, October 7, January 7, and March 31 for the respective quarters of the financial year.

9. Calculation of Interest:

• Interest is computed on the entire amount of the Equalisation Levy that was not deposited by the due date.
• The phrase “part of a month” means that even if the delay is for a single day in a month, the interest for the entire month is charged at 1%.
• Example:
  • If a payer deducts ₹6,000 as Equalisation Levy (6% on ₹1,00,000 for online advertising) but fails to deposit it by the due date (e.g., May 7) and pays it on June 15, interest is calculated as:
    • Delay: May 8 to June 15 (spans two months).
    • Interest: ₹6,000 × 1% × 2 months = ₹120.

10. Responsibility for Payment:

• For the 6% levy: The payer who deducted the levy is liable to pay the interest if they fail to deposit it by the due date.
• For the 2% levy: The non-resident e-commerce operator is liable to pay the interest for delayed payment.

11. Processing and Recovery:

• The interest liability is determined during the processing of the statement (Form 1) under Section 168 or during rectification of mistakes under Section 169.
• The Assessing Officer includes the interest amount in the intimation or demand notice issued to the assessee.
• If unpaid, the interest is recovered as part of the Equalisation Levy arrears under Section 166 (for the 6% levy) or Section 166A (for the 2% levy), treated as a debt due to the Central Government.

12. Practical Implications:

• For Payers (6% Levy): A business paying for online advertising (e.g., to Google or Facebook) must deposit the 6% levy (on payments exceeding ₹1 lakh in a financial year) by the 7th of the next month. A delay, even by a few days, triggers 1% per month interest on the entire levy amount.
• For E-commerce Operators (2% Levy): A non-resident e-commerce operator (e.g., Amazon) must pay the 2% levy (on transactions exceeding ₹2 crore in a financial year) by the quarterly due dates. Late payment attracts interest, impacting compliance costs.

Example:

• Scenario (6% Levy): A company pays ₹5,00,000 for online ads to a non-resident on April 10, 2025, and deducts ₹30,000 (6% levy). The levy is due by May 7, 2025, but is deposited on July 20, 2025.
  • Delay: May 8 to July 20 (3 months).
  • Interest: ₹30,000 × 1% × 3 = ₹900.
• Scenario (2% Levy): An e-commerce operator receives ₹3 crore for e-commerce services in Q1 (April–June 2025). The 2% levy (₹6,00,000) is due by July 7, 2025, but is paid on August 15, 2025.
  • Delay: July 8 to August 15 (2 months).
  • Interest: ₹6,00,000 × 1% × 2 = ₹12,000.