India's Digital Shift: Withdrawal of the E-commerce Levy 

With the Union Budget 2024- 2025, India is planning to withdraw the e-commerce levy on non-resident e-commerce players.

E-COMMERCE EQUALISATION LEVY (E-COM EL) WITHDRAWAL

Background

• Introduced in Chapter VIII of the Finance Act, of 2016, the Equalisation Levy (EL) was designed to tax certain digital transactions.

• Effective from 1 June 2016, any specified person making a payment to a non-resident (NR) for online advertisements and related services was required to deduct EL at 6% of the gross consideration, known as the Ad EL.

• The Finance Act 2020 expanded the scope of EL from 1 April 2020 to include the consideration received or receivable by NR e-commerce operators for e-commerce supply or services (E-com EL) at a rate of 2%.

• Unlike Ad EL, the responsibility for paying E-com EL lay with the NR e-commerce operators, who had to make quarterly payments and file an annual return.

• Income subject to E-com EL was exempt from income tax under the normal provisions of the Act.

Proposed Amendment

• The 2% E-com EL will no longer apply to e-commerce supply or services starting from 1 August 2024.

• The corresponding income exemption for Indian corporate tax purposes will be available to non-resident taxpayers only up to 31 July 2024.

Additional Notes

• No changes are proposed regarding other digital tax measures.

• Ad EL will continue to apply to all advertising revenues earned by non-resident taxpayers.

• There are no proposed changes to significant economic presence rules.

SOURCES/ RECOMMENDED READ: 

• https://www.indiabudget.gov.in/ 
• EY Union Budget 2024-2025