Introduction to the Equalisation Levy’s Removal
The Indian government’s decision to abolish the 6% Equalisation Impose on online advertisements, effective April 1, 2025, has sparked significant debate among industry experts, policymakers, and global tech companies alike. The tax, which has been a critical source of revenue for the government, is expected to provide a substantial benefit to international giants like Google, Meta, and Amazon by lowering their operational costs. However, the move is projected to result in a revenue loss of over ₹3,000 crore for the government in FY26. This move is aligned with India’s broader commitment to global tax reforms, particularly under the framework proposed by the Organisation for Economic Co-operation and Development (OECD).
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The removal of the 6% Equalisation Levy will benefit global tech giants by lowering their tax burden.
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Revenue loss of over ₹3,000 crore is projected for FY26 due to the abolition of the levy.
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The decision is part of India’s compliance with OECD’s tax reform guidelines.
The Equalisation Levy and its Historical Context
Introduced in 2016, the Equalisation Levy—often referred to as the “Google Tax”—was designed to address the issue of foreign digital companies profiting from Indian markets without being subjected to Indian taxes. Initially, the levy was set at 6% on digital services such as online advertising, specifically targeting foreign companies that earned income through services provided to Indian businesses. The government implemented this tax to level the playing field, ensuring that domestic digital companies, who were taxed on their profits, were not at a disadvantage against non-resident firms that typically escaped direct taxation.
In 2020, the scope of the levy was expanded to include a 2% tax on non-resident e-commerce operators serving Indian users. However, this additional tax was removed in the July 2024 Budget. The decision to phase out the 6% levy was made in line with global tax negotiations, specifically the OECD’s Pillar One framework, which advocates for a coordinated approach to digital taxation among countries.
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The 6% Equalisation Levy was introduced in 2016 as part of a bid to tax foreign digital companies operating in India.
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Additional 2% levy on e-commerce services was introduced in 2020 and subsequently removed in the 2024 Budget.
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The removal aligns with the global tax reforms promoted by the OECD’s Pillar One framework.
Financial Implications for the Government
The removal of the 6% Equalisation Levy will lead to a substantial reduction in the government’s revenue collection. According to official estimates, the Equalisation Levy collected for FY24 was approximately ₹3,500 crore, with a slight decrease to ₹3,300 crore anticipated for FY25. With its complete abolition in FY26, the government is set to face a revenue loss exceeding ₹3,000 crore. While the tax relief for global companies is a positive development for the tech industry, this move places a strain on the government’s fiscal resources, which are already impacted by other tax relief measures.
The Finance Minister, Nirmala Sitharaman, has acknowledged that a significant portion of the government’s revenue will be foregone due to tax concessions, including increased rebate limits and lower tax rates under the new tax regime. These concessions are projected to lead to a revenue loss of nearly ₹1 lakh crore in FY26. However, the government is confident that a wider, more dispersed tax base will offset these losses through improved tax compliance and digital data mining techniques.
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The government’s revenue loss from the abolition of the Equalisation Levy is over ₹3,000 crore for FY26.
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Other tax relief measures, including increased rebates and lower tax rates, are estimated to cause a revenue loss of ₹1 lakh crore.
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The government plans to compensate for these losses through a broader tax base and enhanced data mining.
Industry Reactions: Benefits for Tech Giants and the Digital Economy
The removal of the Equalisation Levy is widely seen as a positive development for global tech giants. Industry experts believe that this tax relief will encourage higher spending on online advertisements by international companies, thereby boosting India’s digital economy. Companies like Google, Meta, and Amazon will benefit from the reduction in their operational costs, enabling them to allocate more resources toward expanding their advertising and digital services in the Indian market.
Rajeev Dimri, Senior Tax Partner at KPMG, mentioned that the decision to remove the levy was part of a broader negotiation with the United States, particularly in relation to trade and tariff discussions. He emphasized that the scrapping of the levy would stimulate further growth in India’s digital advertising sector, which is primarily dominated by American tech giants. As the country’s digital economy continues to expand, the increased ad spending by these companies is expected to accelerate market growth and innovation.
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Google, Meta, and Amazon stand to benefit from the removal of the 6% Equalisation Levy.
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The decision is expected to lead to an increase in digital advertising spending in India, benefiting the broader digital economy.
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The levy’s removal is part of a broader trade negotiation between India and the United States.
Trade and Diplomatic Implications of the Levy’s Removal
The timing of the Equalisation Levy’s removal is noteworthy, coming amid ongoing trade negotiations between India and the United States. While some analysts speculated that the government’s decision was influenced by US President Donald Trump’s tariffs on countries imposing digital taxes, Finance Minister Sitharaman has firmly denied any link between the levy’s removal and the trade disputes. The 6% Equalisation Levy was part of India’s commitment to the OECD’s global tax framework and its broader economic strategy.
Finance Minister Sitharaman clarified that the withdrawal of the 2% Equalisation Levy on digital services in 2024 and the 6% levy’s complete removal in 2025 were part of India’s sovereign commitments, not a reaction to external pressures. She noted that these decisions were made after extensive stakeholder consultations, reflecting India’s commitment to being a reliable participant in global tax negotiations.
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The timing of the levy’s removal coincides with ongoing trade talks between India and the United States.
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Finance Minister Sitharaman refuted the claim that the removal was in response to Trump’s tariffs.
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The removal is part of India’s commitment to global tax reforms under the OECD framework.
