India Moving Ahead With Digital Tax

In May, we released a paper informing about the new Digital Tax introduced in India. Considering the wide-scale applicability of the same, we were expecting the Government to release certain clarifications/ FAQs to address the open issues. There were also demands to defer the applicability of EL.

Though the Government has not yet responded to the demands/issues put forth by the Industry Associations and Trade Bodies, the Government on 3rd July 2020, amended the tax payment form used for payment of Equalisation Levy (‘EL’). The tax payment form has now been updated to permit taxpayers to pay the EL introduced this year on digital services.

Though the Government has not issued any press statement, the above change in tax payment form may signify the following:

  • The EL is going to stay and Government will not defer the tax on digital service till the time a global consensus is reached
  • The Government is not deterred by the investigation opened by the US
  • The foreign entities on whom EL is applicable will have to register in India for tax purposes and obtain a PAN (India Tax Registration number)

Considering that the first payment of EL is due on 7th July 2020, a number of foreign entities are bound to miss the deadline owing to issues such as:

  • Obtaining tax registration in India
  • Payment of EL possible only through bank accounts/debit cards held with Indian banks

It is imperative that the Government comes up with detailed guidance with regard to the applicability of EL and defer the payment date by a few months in order to allow businesses time to ascertain the applicability and make arrangements for payment.

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