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    Taxation Of Digital Transactions -Way Forward

    Finance Act 2016 has introduced Equalization Levy w.e.f 01-06-2016 on specified services provided by non-resident not having Permanent Establishment (here in after referred as Specified Non Resident - SPN) in India. It is levied @6% on the amount paid to SPN.


    The levy refers to B2B transactions and not B2C transactions. This new levy introduced in line with the OECD BEPS action plan to tax e-commerce transactions.


    The services covered under the levy so far are related to online advertisement, any provision for digital advertisement space or facility or service for online advertisement or any other service as may be notified by the Central Government.


    Recommendations of the Committee:


    The Committee on taxation of E-Commerce has made the recommendation for introduction of Equalization Levy on specified services by a separate chapter in the FA 2016. The report has defined the term “Specified Services”.


    Accordingly, the Specified services refer to:


    • Online Advertising or any service, rights or use of software for online advertising including advertising on radio and television;


    • Digital Advertising Space;


    (III)    1Designing, creating, hosting or maintenance of website;


    (IV)    Digital space for website, advertising, emails, online computing, blogs, online content, online data

    or any other online facility;

     (V)Any provision, facility or service for uploading, storing or distribution of digital content;


    (VI)    Online collection or processing of data related to online users in India;


    (VII) Development or maintenance of participative online networks;


    (VIII) Use or right to use or download online music, online movies, online games, online books or online software, without a right to make and distributed any copies there of;


    (IX)     Online news, online search, online maps or global positioning system applications;

    (X) Online software applications accessed or downloaded through internet or telecommunications networks;


    1Items in italic are not yet introduced.

    (XI) Online software computing facility of any kind for any purpose;

    (XII) Any facility or service for online sale of goods or services or collecting online payments;

    (XIII) Reimbursement of expenses of a nature that is included in any of the above.

    (XIII) Reimbursement of expenses of a nature that is included in any of the above.



    Though the committee has recommended a big list of specified services the Finance Act, 2016 has made the applicability of Equalization Levy for the time being only on online advertisement services only.


    Changes brought in Service Tax

    2 :-


    With effective from, 01.12.2016, service tax will be levied on cross border online transactions. This levy has been extended to include services provided to non-business entities (referred to as “Non Assessee Online Recipient-NAOR i.e Government, Local Authority, Government Authority or individual in taxable territory3 ). As result of these changes service tax will be levied on B2c transactions also.


    The levy has been expanded by defining the term “Online Information Database Access or Retrieval Services”(OIDAR) to include providing cloud services, provision of e-books, movie, music, digital data storage, online gaming etc...


    The Way Forward:


    If one look closely at the recommendations of the committee and changes in service tax from 01-12-2016 there could be possibility that few more services will be made subject to Equalization Levy through FA 2017. The new services could include cloud computing services, online movies, music, e-books download etc…


    The interesting thing to be observed is in addition to expanding the scope of specified service whether changes would include bringing B2C transactions under the levy?


    The Committee on taxation of E-Commerce has specifically expressed concern that no Equalization levy is payable on B2C transactions considering the compliance and administrative cost in collecting the revenue. So if Government follows the recommendations of the committee there won’t be Equalization Levy on B2C transactions.




    We can expect more services to come under Equalization Levy in future and B2C transactions will be spared of new levy at least for the time being.


    2For detailed discussion please refer to December, 2016 WIKI

     Under the new changes in Service Tax (W E F 01-12-2016) if the OIDAR services are provided to NAOR non-resident service provider has to pay the tax.

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