The Finance Bill 2025-26 has proposed to withdraw the 6 percent Equalisation Levy on online advertising services starting April 1, 2025, marking a significant shift in the country’s digital taxation policy. Scrapping of the equalisation levy has been a long standing demand of companies like Google, Meta and Amazon and its removal will reduce the compliance costs for the big tech. Significantly, this move comes days ahead of Trump’s April 2 deadline to impose reciprocal tariffs
The United States has threatened to levy reciprocal tariffs on all countries including India with which it runs a trade deficit from April 2. With a week to go for its levy, Finance Minister Nirmala Sitharaman has proposed to eliminate the Equalisation Levy as part of the Finance Bill 2025.
Equalisation levy
The levy was imposed on payments made by Indian businesses to non-resident entities for digital advertising services. The move follows India's commitment to align with the OECD’s global tax framework and comes amid renewed trade negotiations with the United States.
The decision to eliminate the Equalisation Levy, a tax that was first introduced in 2016, signals the end of the digital tax that targeted foreign technology giants.
In 2020, India expanded its scope to include a two percent levy on e-commerce operators providing services to Indian users. However, following global tax negotiations, India agreed to phase out the levy once the OECD’s ‘Pillar One’ framework was implemented. With the latest announcement, the entire Equalisation Levy structure will cease to exist from FY26 onwards.
India is among several countries that had introduced unilateral digital taxes before the OECD’s global tax plan was finalised.
However, the financial impact on India’s tax revenue remains uncertain, as the Equalisation Levy contributed to the government’s indirect tax collections from digital firms.
What do experts say?
Experts believe the move could be influenced by geopolitical and trade considerations, particularly with the United States.
“The Government had already removed the 2 percent Equalisation Levy on e-commerce last year. The government is trying to show a more accommodative stance towards the US by eliminating equalisation levy altogether. This step of proposing to remove the 6 percent Equalisation Levy on online advertising is a step in that direction,” Amit Maheshwari, a chartered accountant and tax expert, told Moneycontrol.
“This will reduce the cost borne by Indian consumers of digital advertising on global digital platforms. However, it remains to be seen if this step, coupled with already ongoing diplomatic measures, would lead to any softening of stance by the US,” Maheshwari said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
