Non payment of equalization levy : Disallowance u/s 40(a)(ib)

By | May 23, 2016

Non payment of Equalization levy : Disallowance u/s 40(a)(ib) of Income tax Act 1961

Salient Features of  equalization levy : Disallowance u/s 40(a)(ib)

Deduction of equalization levy for certain specified services is provided in Chapter VIII of the Finance Act, 2016

A new section 40(a)(ib) has been inserted with effect from 1-6-2016 to provide that the consideration paid or payable shall not be allowed as a deduction to an assessee, if the conditions given below are fulfilled:

(a) There is consideration paid or payable by an assessee to a non-resident.
(b) The consideration is paid or payable for a specified service.
(c) The specified service is such that equalization levy is deductible under the provision of Chapter VIII of the Finance Act, 2016.
(d) Such levy
has not been deducted; or
after deduction, it is not been paid on or before the due date for filing return specified in section 139(1).
  • However, if the equalization levy is deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in section 139(1) the sum shall be allowed as deduction in computing the income of previous year in which such levy has been paid
  • The section applies to all assessees, whether corporate or non-corporate and whether resident – carrying on business or profession or whether non-resident – having a permanent establishment (‘PE’) in India.

Section 40(a)(ia) of Income tax Act : Disallowance in case of

Non payment of Equalization levy

Section 29 of Finance Act 2016 amended Section 40 of Income tax Act 1961

22. In section 40 of the Income-tax Act, in clause (a), after sub-clause (ia), the following sub-clause shall be inserted with effect from the 1st day of June, 2016, namely:—
“(ib) any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has no been paid on or before the due date specified in sub-section (1) of section 139:

Provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid;”.

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