India To Levy New Tax On Foreign E-Commerce Companies

India will levy an equalisation levy of 2 percent on sales made by foreign e-commerce companies in the country.

This will impact those companies that don’t have a base in India, but sell their goods here. The levy would be imposed on those companies that have a turnover or sales of over Rs 2 crore in the previous year, according to amendments to the Finance Bill 2020 that was approved by the Parliament today.

These companies will have to pay the 2 percent equalisation levy quarterly from April 1.

The change wasn’t proposed when Finance Minister Nirmala Sitharaman presented the Union Budget on Feb. 1, and comes almost four years after the government imposed a 6 percent equalisation levy on digital advertising to tax companies that had operations in India, but weren’t being taxed.

The new provision to tax foreign e-commerce companies operating in India will help the government in exploring an “untapped resource”, said Amit Singhania, partner at Shardul Amarchand Mangaldas.

Sale of local data collected of Indians and of those who use internet protocol address located in India would also be taxed at 2 percent, according to the amendments.

The definition of an e-commerce company has been kept quite wide, and could include online gaming and entertainment platforms, said Neeru Ahuja, partner at Deloitte India. However, clarity will emerge once details and rules are notified on how this would be enforced, and which services would be covered, Ahuja said.