Lok Sabha clears Finance Bill with 127 amendments
The Lok Sabha on Tuesday passed the Finance Bill, 2021, with finance minister Nirmala Sitharaman introducing fresh amendments giving relief to foreign e-commerce firms.
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.
The Bill, which gives effect to tax proposals for FY22, was passed with 127 amendments.
It 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.
It also imposed minimum equity holding requirements on ULIPs with high premiums. The original Finance Bill had stipulated that ULIPs with annual premiums over ₹2.5 lakh would lose their tax exempt status on maturity proceeds under Section 10(10)(D) of the Income Tax Act, 1961, and would be taxed on par with equity mutual funds.
The amendment further lays down that such high premium ULIPs would need to meet certain minimum equity holding thresholds to be treated on par with equity mutual funds when it comes to capital gains tax. These minimum thresholds would have to be satisfied throughout the term of the insurance policy.
“Budget 2021 made ULIPs with annual premiums over ₹2.5 taxable on par with equity mutual funds. However the amendment to the Finance Bill further specifies that such ULIPs need to either have 65% of their assets in equity if they are directly investing in stocks or 90% of their assets in equity if they are investing indirectly in stocks through instruments like ETFs (on par with Fund-of-Funds),” said Gautam Nayak, Partner, CNK and Associates LLP.