The government has proposed to withdraw a 6% “equalisation levy” imposed on online advertisements in June 2016, in a move that signalled that its ceding some autonomous ground on taxation of the digital economy, at least for the time being. The step, introduced as one of the 59 amendments proposed in the Finance Bill 2025, follows a similar revocation of a more substantive 2% levy on non-resident e-commerce operators last year.
Once Parliament gives its assent, the change will take effect from April 1.
Since the 2% levy was scrapped, India has been using a nexus rule (significant economic presence) to tax non-resident e-commerce operators, with most of them enjoying treaty benefits.
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The decision, experts feel, is aimed at coaxing the US administration to go slow or be lenient on its reciprocal tariff plan, which is to be implemented from April 2. The Donald Trump administration had earlier withdrawn from the OECD-brokered global tax deal that included a two-pillar tax solution to address the taxation issues pertaining to the thriving digital sector.
Even as the hard-won 2021 agreement among nearly 140 nations now looks uncertain, New Delhi has opted for dismantling its interim arrangement in this regard. The equalisation levies, touted as “Google Tax,” were designed for the country to a fair share of taxes from the overseas companies profiting from the Indian market via digital means, without commensurate physical presence.
“Although the 2% levy garnered more criticism from the US, in anticipation of more tariff retaliation by them, the government is trying to show a more accommodative stance, and the removal of 6% levy on online advertising is a step in that direction. 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,” AKM Global Tax Partner Amit Maheshwari said.
“This change would now reduce the costs for digital ad consumers, while lowering tax costs for digital advertisement platforms such as Google and Meta,” said Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen.
The amendments also include withdrawal of the corresponding income tax exemption under Section 10(50) to maintain tax neutrality, meaning income previously exempt under the equalisation levy regime will now be taxed under regular income tax provisions.
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