FAQ ON EQUALISATION LEVY (EQL)

 1.What are you able to mean in terms of EQL?   Equalisation Levy is often referred to in the form of EQL (EQUALISATION LEVIY). It is a test for digital services (mostly advertising) provided within India by non-resident firms.

2. What is the reason for it?

For instance, in India, Non-Resident corporations generally not pay any tax. The government has instituted EQL at 6percent for all non-resident companies who do not have fixed establishments located in India to prevent this.

3. What services are under the jurisdiction of its authority?

EQL is charged for specific services listed in the notice. As of now, only Advertisement is listed as "Specified Services'.

4. What exactly are Specified Services?

Specificities Services are online Advertising or any other digital advertising or any other type of device or service that serves the purpose of advertising online and any other service can be provided to the Central Government may notify in this regard.

5. Who is the person to whom it applies?

This Tax applies to any non-resident company that doesn't have a permanent presence in India. EQL is applicable to organizations such as Google, Yahoo, Facebook and other companies that generate substantial revenue from India through the digital services of advertising.

6. Are the rules of the Equalisation levee apply to me as an individual who wants to market online for my own personal needs?

The payments made for personal use do not fall under Equalisation levies.

7. What rate is applicable?

EQL is evaluated at a 6-percent rate on the list of digital services.

8. Are there any EQL Exemption?

The following is the list:

If the cost of services rendered in the previous year is less than or equal to Rs.1 lakh, then no EQL is calculated.

EQL is only applicable to B2B transactions. B2C operations are not affected by it.

If a business is located on the territory of Jammu or Kashmir, EQL does not apply to that company.

9. I have put up ads on Facebook to promote my bakery business. I have to pay Facebook the amount of Rs. 40000 for FY 2019-20 in exchange for the services that I purchased. Do I have to pay the Equalisation levee be applicable to me?

No, you aren't obliged to deduct the equalisation tax because your annual contribution were not more than Rs.1,00,000 throughout the fiscal year.

 

10. What happens if a business isn't paying an service company's EQL?

It is expected that the EQL responsibility will then be passed to the service recipient should an organisation (service provider) is unable to pay EQL to the recipient of service.

11. What is the deadline for the submission of Equalisation statement of levy?

Annual returns are required to be submitted electronically on Form No.1 prior to June 30th, the day after the conclusion in the financial year according to Section 167 of Finance Act 2016 rules 5 and 6.

12. What has been the impact of Finance Act of 2020 expanded the extent of Equalisation Levy?

Equalization Levy was charged solely on the value payable or received by non-residents who provide online advertising services or similar service in the case of individuals who are Indian resident or any person who has PE in India in accordance with Section 161 of the Finance Act, 2016 ("FA 2016," in short).

As a result of the Finance Act, 2020, the new section 165A was added in the FA 2016, which aims to expand the coverage of the Equalisation Levy by incorporating the amount of consideration that is received or payable for online commerce Supply or Services by an online retailer within its definition.

Online sellers will have to settle an Equalisation Levy of 2% (the "New Equalisation Levy") of the money received or owed.

13. What day will take effect the New Equalisation Levy take effect?

The New Equalisation Levy will go into effect April 1st in 2020. This means that beginning in F.Y. 2020-21, a business that provides e-commerce products and services to a certain population will be legally required to contribute this New Equalisation Levy.

14. What exactly does "E-Commerce supply or services" mean in the context of the New Equalisation Levy?

When an e-commerce company engages in offering the services or products of an e-commerce site and services, the new Equalisation taxation is in place. The term "E-Commerce supply or services" is defined under section (cob) in Section of 164 of the FA in 2016 to this effect:

online sales of products that are owned by the e-commerce company or

the online service delivery by an e-commerce provider the e-commerce operator; or

online sale of products or the provision of services, or both, made possible by an e-commerce provider;

Combination of any of the above-mentioned activities.

15. Is this New Equalisation Levy in India be applicable to all online-based items or services the operator of e-commerce provides, sells or facilitates?

The New Equalisation Levy will not be applied to all the products or services that an e-commerce company offers, makes offer, provides, or facilitates. In accordance with section 165 A (1) of the FA in the following people (referred by the term "Specified Persons") will be subject to the New Equalisation Levy:

when an e-commerce provider delivers goods or services or both to a person who is or residing in India;

Any time an e-commerce company offers goods, services, or both to a client who buys those products, services, or both with an IP address from India;

In the event that an online merchant offers services, products or both, to an individual who is not a resident in a particular circumstance.

16. In the event that New Equalisation Levy is an expense that the online retailer has to pay, or if it's payable separately to the customer in the invoice that the online retailer is able to raise?

An online retailer could be subject to a New Equalisation levy, which is a direct tax that is assessed on profits from sales of products or services that are created, provided by or facilitated by the company. This means that the cost has been placed directly on the company that operates the website and has to be paid by it on its own. However, the way an e-commerce business structure its business operations to pay for this additional tax could differ from case to instance.

For example, ABC, an online retailer offers Indian residents the sum of Rs. 20 crores for its services. in turn, must pay an equalisation cost at 2% of that amount, which is 40 lacs, or. 40 lacs, to be following the regulations of the government. In the future, if ABC decides to raise the amount of consideration to the amount of Rs. 10.40 Crores, and then decides to charge the equalisation tax of the amount of Rs. 40 Lac from its customers and it is responsible for the payment of Equalisation levy based on this new amount.

Accounting outsourcing services in Delhi

17. What time should when the New Equalisation Levy be deposited into the Central Government's account?

In accordance with Section of 166  A of the FA in 2016 the online retailer must deposit quarterly the New Equalisation Levy to the credit of the Central Government by the following dates:

A deposit for the New Equalisation Levy for the 4 4th quarter, which has to be paid within the quarter itself, in contrast to the 3rd quarter, in which the levy is to be paid on seven days following the close in the applicable quarter is a real issue.

18. What happens if the online company fails to pay or deposit for the New Equalisation Levy?

If an online business is unable to pay or deposit the New Equalisation Levy, they are also required to pay the penalties listed below:

The interest on the delayed payment of the Equalisation levy

Each e-commerce company who fails to pay the entire equalisation levy before the due date is ordered to make payments of simple interest at the rate of one percent from the levied every month or part of a month in which the inability to deposit continues.

Penalties for failing to pay the Equalisation levy

Any e-commerce business that fails to pay the full or a part of the equalisation tax in the account from the Central Government is subject to an amount equivalent in amount to not paid equalisation levy.

19. What happens for not filing you do not file the Equalisation Levy Statement is not submitted?

A business that fails to meet the deadline for submitting the Equalisation Levy Statement will be liable to pay the fine of Rs.100 for every day that passes without making the submission.

20. What is an e-commerce retailer's obligation to adhere to when giving an account statement?

Every online retailer must prepare and deliver the Equalisation Levy Statement in the way and format that is required by the Assessing Officer as well as any other authority or organization authorized through the Board. In addition, the statement must be submitted on or before the 30th June following the conclusion of the current F.Y.,and it is r

Internal Audit vs External Audit: Key Differences Explained

 As businesses expand and expand, they must ensure that the financial records of their company are accurate and that their business operations follow the legal and regulatory standards. In order to achieve this, they can perform internal audits or employ external auditors. Internal and external audits have the same purpose which is to enhance the efficiency of an organization and increase accountability. They differ however in regards to their purpose as well as their scope and methodology. This article we'll examine the distinctions between internal audits and external audits as well as their benefits.

1. Introduction Auditing is an important aspect of managing finances in every organization. It is the process of reviewing the financial records and operation to verify that they are correct as well as in line with law and regulations. There are two kinds of auditing which are: the internal audit, and an external audit. Internal audits are performed by employees of the company as opposed to an external audit which is performed by a third-party auditor. Both kinds of audits are essential to the organization's success, however they differ in their goals, scope, and methods.

1. What is an Internal Audit?
   Definition and Objectives
   Internal audits are an impartial and independent review of a company's internal controls financial reporting, internal controls, and operational procedures. The objective of internal audits is to discover risks and weaknesses in the organisation's procedures and systems and make recommendations to improve. Auditors who are internal employees work for the business and are accountable on behalf of the committee for audit or the management. Accounting outsourcing services in Delhi 
   
   Scope
   Internal audits cover an array of subjects that include financial reporting in compliance with the law and regulations as well as risk management operating efficiency. Internal auditors examine their internal control and procedures and provide recommendations to improve.
   
   Methodology
   Internal auditors utilize a systematic process to evaluate the effectiveness of an organization's procedures and controls. They might employ a mixture of interview, documents review as well as observation and tests to assess whether internal controls are effective and procedures. Internal audit reports contain recommendations for improvement. Management is accountable for the implementation of the recommendations.

1. What is an External Audit?
   Definition and Objectives
   External audits are an independent assessment of the financial statements of a company and internal controls performed by an auditor from a third party. The objective in an external audit is give an impartial assessment of the financial statements of the company and to verify the compliance of regulations and laws. External auditors are not part of the business and report to shareholders or the board of directors.
   
   Scope
   The external audit is focused upon the accounting records as well as internal controls of the business. External auditors examine the company's financial statements and assess how effective internal controls are. They also assess the compliance with applicable laws and regulations.
   
   Methodology
   External auditors utilize a systematic process to examine the organization's internal controls and financial statements. They can employ a mix of documents, tests, and interviews to determine whether internal control systems are effective and procedures. External audit reports offer an objective opinion about the financial statements of the company and provide a list of areas for incompatibility or weaknesses.

1. Differential ties between External Audit and Internal Audit
   Independence
   The primary distinction in internal and external audits is their independence. Internal auditors have the status of employees within an organization and external auditors are not part of the company. This autonomy allows external auditors to offer an impartial review of the organization's internal controls and financial statements.
   
   Reporting Line
   Internal auditors are accountable on behalf of the committee for audit or the management, whereas external auditors report to board of directors or shareholders. External auditors give an independent assessment of the financial statements of an organization and internal controls, whereas internal auditors concentrate on identifying weaknesses and risks and making recommendations for improvement.
   
   Focus
   The internal audit is focused on the internal controls within the organization including financial reporting, as well as operations processes. It examines whether internal controls and procedures and offers suggestions for improvement. The external audit is focused on the financial statements of the company and its internal procedures. The audit provides an independent view about the financial statements of the business and also identifies weak points or areas of incompatibility.
   
   Responsibility
   Internal auditors are accountable to identify weaknesses and risks and recommending improvements. Management is accountable for the implementation of these suggestions. External auditors are accountable to give an impartial review of the organization's internal control and financial statements.
   
   Standards
   The internal audit is conducted according to the standards established by the Institute of Internal Auditors (IIA). External audit is conducted in accordance with the standards that are set by the International Auditing and Assurance Standards Board (IAASB).

1. Benefits of Internal and External Audits
   Audits both internal and external provide many benefits to companies which include:
   
   Improved Controls
   Audits can help determine points where the internal security need to be improved, thus reducing the possibility of errors and fraud.
   
   Compliance
   Audits are a way to ensure compliance with law and regulations, which reduces the chance of financial and legal sanctions.
   
   Efficiency
   Audits uncover areas in which processes could be improved and streamlined to make them more efficient, thus reducing costs and increasing productivity.
   
   Trust and Credibility
   Audits offer an impartial opinion about the financial statements of an organization along with internal procedures, thereby increasing credibility and trust among stakeholders.

Conclusion
External audits and internal audits share the same objective to improve the efficiency of an organization and accountability. They differ however in regards to their purpose the scope, methodology, and objectives. Internal audits focus on identifying the weaknesses and risks and recommending improvements as opposed to the external audit, which gives an independent assessment of the financial statements of a company as well as internal control. Audits of both types bring numerous benefits, including better controls, compliance, efficacy as well as trust and credibility with other stakeholders.

 

Forensic Auditing

Forensic Auditing involves conducting examination and evaluation of a firm’s or individual’s financial information and legalities for determining whether any fraud or negligence has taken place and if yes, to use the evidence collected during such Audit in the court of law.
Objective
The objective of FORENSIC AUDIT is to find the audit evidences which are legally tenable and in doing so the Corporate veil of the company can be disregarded.
Following points are considered

• Any Fraud or negligence took place?
• Is the effect material?
• Who are the responsible people?
• How much can be recovered?

Skills Required (Chartered accountant in India)
Following skills are required for an efficient and fruitful Forensic Audit

• Deep Knowledge of Accounting
• Proper Understanding of Auditing
• Required traits of Investigating
• Obvious should be distrusted
• Think differently and Develop an open mind

Critical Point Auditing
Purpose of critical point auditing is screening out the fraud or false transactions and events from the normal ones.
An analysis and evaluation of financial statements, books and records are conducted to find out :

• False credit to increase sales and corresponding debit entries.
• Inadequacies in Internal Control System of the organization.
• Cross debits and credits and inter account transfers

Propriety Audit
Main purpose of Propriety Audit is to determine the genuinity of the transactions in Government Account.
It means whether entire expenditure sanctioned by the government is actually required and need based and whether all the incomes arising on account of that are fairly and timely credited to the government account.
It aims at determining the Value for money, whether the economy and efficiency has been achieved in the transaction and unwanted, wasteful and unnecessary expenses have been ignored.
If anything objectionable or any fraudulent intension is recognized then people and organizations suspected to be behind that are questioned.
Case Studies
Based on Balance Sheet as on 30th June, 2002,showing erosion in net worth, Vivita Ltd. filed a reference U/S 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985. Secured creditors objected on the grounds, amongst others, that:
(a) Requisite number of directors did not attend the meeting of Board of Directors of the company held to decide on reference to BIFR.
(b) Company indulged in the following:-

• Gave a huge discount of Rs.6.48 crore without any explanation/justification.
• Company devalued its investments by 90% without explaining reasons for such a devaluation.
• Company had written off R s. 3.97 crore on account of foreign exchange fluctuations
• Addition to gross block included Rs.26 lakhs as land development expenses, actually not incurred, as per inspection carried out by banks.
• Depreciation increased by Rs.1.84 crore despite a fall in fixed assets

BIFR observed that the group companies (to which Vivita belonged) referred to BIFR, though engaged in different activities, adopted the pattern of reporting huge losses on slight fall in sales. Marginal fall in the sales and huge losses accompanied with large discounts in a single financial year was common to all the companies.
Vivita’s Explanation/representation and decision of BIFR

• Vivita stated huge discounts were offered to liquidate stock, as it feared trademark infringement proceedings by another company. BIFR did not accept this as sufficient evidence was not made available and hence heavy increase in discounts and losses were not allowed
• Devaluation of investments not admitted as Vivita Ltd failed to submit copy of B.O.D. resolution to ascertain whether it was long-term or short-term investment
• Explanation of Vivita Ltd as for increase in depreciation was acceptable
• Considering the market practice in the industry of taking advance from buyers and passing the same to the suppliers, BIFR noted that selling prices and the procurement prices are fixed in advance. BIFR set aside Vivita Ltd’s contention of losses in trading activities and ruled that losses of the company were overstated by Rs. 34.61 crore on account of increase in raw material consumption.
• As to increase in loans, details were not available, but in case of unsecured loans, BIFR observed that Vivita Ltd. had given preferential treatment in the payment of unsecured loans at the cost of secured loans.
• Regarding loss of Rs.40 crore on a marginal fall in the sales, Vivita has not submitted any explanation

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