Home >News >India >Lok Sabha passes Finance Bill, offers relief to foreign e-tailers

The Lok Sabha on Tuesday passed the Finance Bill, 2021, with finance minister Nirmala Sitharaman introducing fresh amendments giving relief to foreign e-commerce companies.

The amendment means offshore e-commerce platforms don’t have to pay 2% equalization levy, or digital service tax, on that portion of goods which are sourced from India.

“Through the amendment I am moving today, I intend to clarify that equalization levy is not applicable on consideration for goods which are owned by Indian residents," Sitharaman said during a day-long debate on the bill.

The digital tax, rolled out on 1 April 2020, applies only to non-resident companies with annual revenues in excess of 2 crore, and covers online sales of goods and services to Indians.

Rakesh Nangia, chairman, Nangia Andersen India, a consultancy, said if goods or services listed on a foreign marketplace are owned or provided by an Indian resident or Indian permanent establishment of a foreign entity, it shall be out of the purview of the levy.

Sitharaman said the government is in favour of digital transactions and is not trying to undermine it. “Equalization levy is a tax which has been imposed to give level-playing field between Indian businesses who pay tax in India and foreign e-commerce companies who do business in India but don’t pay any income tax here. We are only trying through the equalization levy to treat everybody who is operating in India equally. If the foreign e-commerce companies pay income tax here then the equalization levy is not applicable to them. Hence there is no extra burden on any company," she added.

The equalization levy became a contentious issue after the US said it discriminated against US firms, and could potentially result in withdrawal of US trade concessions or duties on Indian exports. The US Trade Representative’s office in a report released in January said that of the 119 companies that are likely liable under the tax, 86, or 72%, were US firms with an annual tax liability of over $30 million.

Through another amendment, Sitharaman also tweaked the earlier plan proposed in the Finance Bill 2021 to tax interest income earned on Employees’ Provident Fund (EPF) contribution above a specified threshold. As per the original proposal, if a person contributed 2.5 lakh or more to the EPF account, the interest earned on the contribution above this threshold would become taxable. Employers’ contribution was not to be taken into account for calculating the tax liability.

The minister also introduced a higher threshold of 5 lakh, which applies only in cases where the employer does not contribute. The limit of 2.5 lakh stays keeping in mind that small savers are not impacted by the new rule, the minister said. “Through this amendment, I intend to raise this limit to 5 lakh only in those cases where there is no contribution from the employer in that fund."

The Bill also provided for a 10-year income-tax exemption to the National Bank for Financing Infrastructure and Development and a five-year tax exemption to private sector development finance institutions, which can be extended by another five years.

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