The government has proposed the abolition of the 6% Equalisation Levy on online advertising in the Finance Bill 2025, reducing the tax burden on digital ad consumers and lowering costs on platforms like Google and Meta. If passed in parliament, the 6% Equalisation Levy would cease to exist from 1 April 2025.
This is a significant move in the context of the ongoing Indo-US bilateral trade talks, and the imminent threat of reciprocal tax, which is likely to come into force from 2nd April, 2025.
The US government has always termed the digital taxes levied by India as discriminatory, targeting mainly tech giants from the US. Last year, the government had scrapped a similar levy of 2% on digital e-commerce supplies and services. The latest announcement by the government is, therefore, construed as an attempt by the government to appease the Donald Trump administration.
This change would now reduce the costs for digital ad consumers, while lowering tax costs for digital advertising platforms such as Google and Meta, says Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen.
“Consequently, the corresponding income tax exemption under Section 10(50) has been withdrawn to maintain tax neutrality, meaning income previously exempt under the Equalisation Levy regime will now be taxed under regular income tax provisions,” he added.
The government introduced the 6% Equalisation Levy in 2016.
The removal of the levy is seen as a move towards aligning with the uniform tax rules under two pillar solutions proposed by the Organisation for Economic Co-operation and Development (OECD). Currently, digital companies based outside the tax jurisdiction of a country escape paying taxes on revenue earned from that country. Pillar 1 of the OECD tax rules require multinationals including digital companies to pay at least some tax in the markets they interact with.
“Even from an international tax policy standpoint, most of unilateral measures undertaken by governments around the globe in 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,” says Sumit Singhania, Partner, Deloitte India.
The other major change proposed by the amendment in the Finance Bill is a clarification which says where 25% presumptive income regime for electronics manufacturing is available, exemptions under Sections 44DA and 115A will not apply in such cases.
An amendment now empowers the Centralised Processing Centre (CPC) to adjust income tax returns based on inconsistencies with prior-year filings, strengthening the compliance oversight. “By enabling automated checks for discrepancies, this measure is expected to enhance tax monitoring and reduce instances of tax evasion and misreporting,” says Sandeep Jhunjhunwala of Nangia Andersen.