Submission to Ministry of Finance to highlight issues Issues faced by non-resident e-commerce operators in undertaking compliances relating to Equalisation Levy

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Submission to Ministry of Finance to highlight issues Issues faced by non-resident e-commerce operators in undertaking compliances relating to Equalisation Levy

Tejasvi

@tejasvi

February 10, 2021

Public Policy

119

Background:

EL was first introduced in India vide Finance Act (FA) 2016, with effect from June 1, 2016 which requires specified person making payment to non-residents (NR) for online advertisement and related services, to deduct EL at 6% of gross consideration (6% EL).
FA 2020, introduced vide April 1, 2020, expanded the scope of EL to levy tax @ 2% on consideration received/receivable by NR e-commerce operators for e-commerce supply of goods or services made to resident persons, subject to certain conditions (2% EL).
The Central Board of Direct Taxes (CBDT), on May 27, 2016, notified Equalisation Levy Rules, 2016 (EL rules), which requires furnishing of annual statement in Form 1 in respect of all specified services chargeable to EL during any financial year. Further, CBDT notified amendments to EL rules in October 2020 to extend its applicability to 2% EL as well.

Challenges for NR e-commerce operator to file annual statement in Form 1:

In case of a company, the annual statement in Form 1 is required to be furnished and verified by the person authorised to verify return of income under Income Tax Act, 1961 (Act) or the principal officer of the company.
Further, as per the current format of annual statement in Form 1, the verification section requires the person verifying annual statement to mandatorily furnish Permanent Account Number (PAN).
As per S. 139A of the Act read with Rule 114 of Income Tax Rules, 1962 (Rules), a person is required to obtain PAN, inter-alia, only if such person is subject to income-tax in India.
In case of NR e-commerce operators, the person verifying the annual statement is likely to be a NR employee who would, most likely, not satisfy the requirements for obtaining PAN in India.
Accordingly, mandating PAN for such employee of a foreign company, merely for the purpose of filing annual statement, creates unnecessary procedural burden. Further, in cases where the person verifying the annual statement is unavailable and a different NR employee is appointed in his/her place, the PAN process would need to be redone for the new employee, leading to further administrative hassles.
As per S. 139 of the Act read with Rule 12 and form ITR-6 notified for companies, the return of income of a foreign company is required to be verified electronically through Digital Signature Certificate (DSC) of the authorised signatory. However, it is not mandatory to quote PAN of the signatory for signing return of income of the foreign company. Thus, the intention of the law is not mandate NR employee of a foreign company to obtain PAN for undertaking various compliances in India.

Recommendation
In this regard, NASSCOM has made a submission to Ministry of Finance requesting the government to issue a clarification that it is not mandatory for non-resident employee, verifying the annual statement of a NR e-commerce operator, to obtain and furnish PAN in India, as long as a valid DSC is used for verification. This will help in simplifying EL compliances for NR e-commerce operators and would be in line with the current process of filing tax returns for non-resident entities.

We hope you will find the update useful. We will keep you posted on further developments in this regard.

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Tejasvi

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