India’s plan to remove 6% equalisation levy a shot in the arm for Google, Meta; ad spend set to surge

India first introduced the equalisation levy in 2016 to tax profits generated by non-resident digital companies providing services to Indian firms

India's proposal to remove the 6 percent equalisation levy on online advertising services is expected to give a shot in the arm for global tech giants such as Google and Meta, as it could lead to a surge in ad spending and further boost the country’s rapidly growing digital ecosystem.

Industry experts and ad agencies Moneycontrol spoke to said that the move will make advertising more affordable, benefiting startups and small businesses.

Yasin Hamidani, director of Media Care Brand Solutions, a digital marketing agency, said the levy, initially introduced to tax foreign tech giants benefiting from India’s digital economy, had increased advertising costs for businesses relying on global platforms such as Google and Meta.

Its removal will likely lower ad costs for brands and advertisers, enabling better return on investment (ROI) on digital campaigns, he said. Businesses will also have more flexibility to allocate budgets across domestic and international platforms, he said.

It will make online advertising more accessible and cost-effective for businesses of all sizes, particularly benefiting startups and small enterprises, Viren Vesuwala, lead of strategic partnerships and alliances at ad agency White Rivers Media, said.

"For Indian ad companies, this shift presents opportunities and a few speed bumps. While the reduction in costs for international platforms could heighten competition, it also pushes local agencies to innovate and offer more differentiated services," he said.

Also read: Finance Bill proposal to scrap 6% equalisation levy on online advertising from April 2025

Google and Meta dominate India's digital advertising market. They together accounted for around 65 percent of the Rs 50,000-crore market in 2024. The industry is expected to grow to nearly Rs 70,000 crore by the end of 2026, a report released by Dentsu said.

The measure is expected to reduce tax burden for the tech giants and lower their operational costs. It is also likely aimed at appeasing US President Donald Trump who plans to slap reciprocal tariffs on trading partners imposing digital taxes on American tech firms from April 2, as part of his larger tit-for-tat taxes.

Some countries, such as the United Kingdom, are also looking at reducing or removing their digital tax to avoid such tariffs.

The development also comes at a time when India and the United States are engaged in broader trade negotiations that have been ongoing for a while.

Also read: Nasscom welcomes FinMin's proposal to drop 6% equalisation levy, says positive for India-US trade talks

Why India introduced this levy?

India introduced the equalisation levy, also referred to as Google Tax, in 2016 to tax profits generated by non-resident digital companies providing services to Indian firms where the invoicing occurred outside the country and payments made in foreign currency.

It was designed to ensure a level playing field for local digital businesses, which were subject to income tax.

The government initially charged a 6 percent levy on digital services such as online advertising or any other facility or service for the purpose of online advertisement where the gross consideration from an Indian resident or a non-resident firm with a physical presence in India was more than Rs 1 lakh in a financial year.

In 2020, India expanded its scope to include a 2 percent levy on non-resident e-commerce operators providing services to Indian users. However, following global tax negotiations, India agreed to phase out the levy once the Organisation for Economic Co-operation and Development’s (OECD’s) “Pillar One” framework was implemented.

The country removed the 2 percent levy on e-commerce operators in the July 2024 Budget. With this latest announcement, the equalisation levy structure will cease to exist from FY26.

"In practice, I believe the revenue generated from this levy was limited but the compliance burden was and is significant, especially for smaller advertisers and direct-to-customer (D2C) brands navigating cross-border billing structures," said Ambika Sharma, founder and chief strategist, Pulp Strategy, a digital ad agency.

The elimination of the levy will simplify taxation, reduce operational friction in digital media planning, and align India more closely with the OECD’s global tax framework, Sharma said.

Deloitte India partner Sumit Singhania echoed a similar sentiment, calling the step a progressive policy move in sync with the government's efforts to simplify income tax legislation and bring higher degree of certainty to taxpayers.

"Even from an international tax policy standpoint, most of the unilateral measures undertaken by governments around the globe in the last several years to deal with growing tax challenges of digitalisation of economies have to be steadily wound back, to make way for uniform tax rules under two pillar solutions espoused by OECD," he said.

Hamidani said the elimination of the levy may reduce the government's revenue from digital advertising. The financial impact on India’s tax revenue, however, remains uncertain, as it contributed to the government’s indirect tax collections from digital firms.