India to Scrap 6% Equalisation Levy on Digital Advertising from April 2025

Finance Bill 2025-26 Marks Major Shift in Digital Taxation Policy

In a significant policy change, the Indian government has proposed to abolish the 6% Equalisation Levy on online advertising services starting April 1, 2025. The decision, outlined in the Finance Bill 2025-26, comes as India moves to align its tax policies with the OECD’s global tax framework and strengthen trade relations with the United States.

This move is expected to benefit non-resident digital advertising giants such as Google, Meta, and Amazon, which have long been subject to the tax on payments received from Indian businesses.

Impact of the Removal of Equalisation Levy

The withdrawal of the Equalisation Levy marks the end of a targeted tax on foreign technology firms, introduced in 2016 as part of India’s efforts to tax revenues generated by global companies from Indian users.

Implications of the Move:

• Reduced Compliance Burden for Foreign Firms: Multinational companies will no longer need to account for the 6% levy, leading to easier tax compliance.

• Lower Advertising Costs for Indian Businesses: Companies relying on digital advertising will likely see cost reductions, as the tax burden previously passed on to Indian advertisers is removed.

• Strengthening US-India Trade Relations: The move is expected to ease tensions between India and the US, which had objected to the digital tax.

Government’s Strategy in Phasing Out Digital Taxation

The decision to eliminate the Equalisation Levy follows a similar move in 2024, when India withdrew the 2% levy on e-commerce transactions after agreeing to the OECD’s Pillar One tax framework.

India had initially expanded the Equalisation Levy in 2020 to include a 2% tax on e-commerce operators servicing Indian customers. However, after global negotiations, India committed to phasing out unilateral digital taxes in exchange for a broader multilateral taxation framework under the OECD.

According to Amit Maheshwari, a chartered accountant and tax expert, India is showing a more accommodative stance towards the US by completely eliminating the Equalisation Levy on digital advertising.

Global Context: India’s Role in the OECD’s Tax Reform

India is one of several nations that implemented unilateral digital taxes before the OECD finalized its global tax reform plan. The Pillar One framework ensures that large multinational tech companies pay taxes in countries where they generate significant revenue, rather than routing profits through low-tax jurisdictions.

By scrapping the Equalisation Levy, India is demonstrating its commitment to global tax reforms while simultaneously reducing friction with major trade partners like the US.

Potential Economic and Tax Revenue Impact

While the move is expected to have positive trade and investment implications, experts caution that the financial impact on India’s tax revenues remains uncertain.

The Equalisation Levy had become an important indirect tax collection tool for India, especially as the country sought to increase tax revenues from digital giants benefiting from the Indian market. The government must now explore alternative tax mechanisms to compensate for this revenue loss.

According to Maheshwari, the real test will be whether the US government softens its stance on trade negotiations, given India’s concession in digital taxation.

How Will This Impact Digital Advertising in India?

With the 6% levy on digital advertising set to be removed, the Indian digital advertising ecosystem is likely to experience several key shifts:

1. Cost Reduction for Indian Advertisers: Businesses that rely on Google Ads, Meta (Facebook & Instagram) advertising, and Amazon’s marketing platform may see lower costs, as digital platforms will no longer pass on the tax burden to Indian users.

2. Higher Investments in Digital Advertising: With reduced taxation costs, companies may increase their spending on digital marketing, driving further growth in the sector.

3. Improved Market Access for Global Firms: The removal of this tax barrier makes India an even more attractive market for global technology players, leading to potentially higher investments in the digital economy.

Trade and Diplomatic Considerations

The decision to scrap the Equalisation Levy coincides with renewed US-India trade discussions. The US government had earlier criticized India’s unilateral digital tax, viewing it as a discriminatory measure against American technology firms.

By eliminating this tax ahead of the OECD framework implementation, India is:

• Removing a major trade irritant that had led to disputes between the two nations.

• Boosting diplomatic relations with Washington, particularly at a time when geopolitical alliances are evolving.

• Signaling investor-friendly tax reforms, potentially attracting more foreign direct investment (FDI) into India’s digital sector.

Future of Digital Taxation in India

With the Equalisation Levy set to be completely phased out, India will need to explore alternative taxation models to ensure fair revenue collection from digital companies.

Possible Future Taxation Strategies:

• Implementation of OECD’s Global Minimum Tax to ensure large tech firms contribute fairly to India’s tax base.

• New rules under GST (Goods and Services Tax) for digital services, ensuring taxation compliance for foreign digital platforms operating in India.

• Enhanced corporate tax regulations to prevent profit shifting by multinational companies.

What’s Next?

While the removal of the 6% Equalisation Levy is a step towards tax simplification, its long-term implications will depend on:

• How India restructures its tax policies under the OECD’s global tax plan.

• The response from US policymakers and its effect on bilateral trade agreements.

• Whether foreign digital firms reinvest their tax savings into India’s digital economy.