The removal of the six percent Equalisation Levy on online advertisements is likely to result in a revenue loss of over Rs 3,000 crore for FY26, a senior government official told Moneycontrol.
“…Equalisation levy collected in 2023-24 was at around Rs 3,500 crore and at Rs 3,300 crore in 2024-25,” the official said, confirming the revenue loss figure.
The Finance Bill 2025-26 had announced that the 6 percent Equalisation Levy to be abolished effective April 1, 2025. The decision is expected to provide relief to global tech companies such as Google, Meta, and Amazon by reducing tax burden and lowering operational costs.
The government's decision to provide income tax relief, announced in the Union Budget, has also a significant part of government’s revenue will be foregone. Various tax concessions, including increased rebate limits and lower tax rates under the new tax regime are estimated to lead to a revenue loss of nearly Rs 1 lakh crore in FY26, Finance Minister Sitharaman had said.
“Withdrawal of Equalisation Levy has been a sovereign commitment in course of OECD’s Two-Pillar solutions and puts India within the band of trusted countries who seldom renege on commitments they make. There would be little likelihood of a slump in direct tax collections in 2025-26 owing to the continuing increase in personal income tax return filers as the department's data mining arms have started delivering, consequent upon good subordinate legislations and efficient administrative interventions. There is also continuing refinement of the Annual Information Statement (AIS) and inclusion of more items of disbursement/receipt within its coverage,” former Central Board of Direct Taxes (CBDT) chairman JB Mohapatra told Moneycontrol.
“There is a strong belief that a wider more dispersed tax base that targets individual taxpayers beyond the salary class will fill the gaps arising from the ₹1 lakh crore relief. The equalisation levy loss was a bargaining chip that the government has used in its tariff negotiation. Unlike the Rs 1 lakh crore relief, this is relatively a smaller amount,” Rohinton Sidhwa, Partner, Deloitte India, said.
Industry experts believe that removing the levy will encourage higher ad spending by companies, benefiting tech giants and further accelerating the growth of India’s digital economy. The decision to scrap the Equalisation Levy is expected to fuel growth in the country’s digital advertising sector, which is dominated by Google and Meta.
“Removal of the Equalisation Levy was specifically agreed with the US a few years ago. The overall relief of direct tax will need to be met with general growth and buoyancy in the economy and better tax administration via digital data mining,” Rajeev Dimri, Senior Tax Partner, KPMG, told Moneycontrol.
Trade and Diplomatic Implications
The removal of the levy comes at a time when India and the United States are engaged in broader trade negotiations, and while some analysts speculated that the move was influenced by US President Trump’s reciprocal tariffs on countries levying digital taxes on American tech firms, Finance Minister Sitharaman has refuted this view.
“Withdrawal of the Equalisation Levy is not a reaction to President Trump’s tariff wars. The 2 percent Equalisation Levy was withdrawn after stakeholder discussions in July 2024, which was before Trump took office. Removal of the 6 percent Equalisation Levy is a part of that process,” Sitharaman clarified on March 27.
The July 2024 Budget had earlier removed the 2 percent levy on digital services.
Equalisation Levy in India
India had introduced the Equalisation Levy, also known as the ‘Google Tax,’ in 2016 to tax profits generated by non-resident digital companies providing services to Indian firms. Since these companies invoiced services outside the country and received payments in foreign currency, the government sought to create a level playing field for domestic digital businesses that were subject to income tax.
Initially, a 6 per cent levy was imposed on digital services such as online advertising for transactions exceeding Rs 1 lakh in a financial year. In 2020, the government had expanded the levy’s scope by introducing a 2 percent tax on non-resident e-commerce operators providing services to Indian users.
However, following global tax negotiations, India committed to phasing out the Equalisation Levy in line with the Organisation for Economic Co-operation and Development’s (OECD) ‘Pillar One’ framework. The 2 percent levy on e-commerce operators was removed in the July 2024 Budget, and with this latest announcement, the Equalisation Levy has been completely abolished from FY26.
“The Budget Estimates 25-26 have well balanced the direct tax relief impact as well as the Equalisation Levy impact with enhanced buoyancy in tax collections along with reduction in certain other spends. Per se, the impact of these is already factored in the fiscal estimates and should not have any additional pressure on fiscal deficit,” Anand Bathiya, President, BCAS (Bombay Chartered Accountants’ Society), said.
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