Income Tax Update No Equalization Levy From April 1

We are pleased to inform you of a significant update to India’s digital taxation framework. Effective April 1, 2025, the Indian government has proposed the complete abolition of the 6% Equalisation Levy (EL 1.0) on online advertising services provided by non-resident digital companies. This follows the earlier removal of the 2% Equalisation Levy (EL 2.0) on e-commerce services, by finance Act 2024. Together, these changes mark the full rollback of India’s digital tax regime under the Equalisation Levy framework. Introduced under Section 163 of the Finance Act, 2016, the Equalisation Levy was designed to tax digital transactions where non-resident companies earned revenue from Indian users without a physical presence in India. Specifically, EL 1.0 required Indian businesses to deduct and deposit a 6% levy on payments made to non-resident digital platforms for online advertising services, with remittance due by the 7th of the following month.

However, in the absence of equalisation levy, such transaction also needs to be looked into from the perspective of permanent establishment (PE), royalty and fees for technical services (FTS) to avoid the litigation. The Indian tax authorities may argue that such transaction may also constitutes a PE or is taxable as Royalty or FTS under the Income-tax Act, 1961 (ITA) and tax treaties and liable to be tax at the applicable rate—35% in the case of a PE, or 20% (or the beneficial DTAA rate) in the case of Royalty/FTS, wherever applicable.

Notably, the elimination of EL 1.0 is expected to streamline compliance for Indian businesses by removing this deduction obligation. It should also reduce the cost of digital advertising services, providing financial relief and enhancing competitiveness. Also, it will reduce the tax burden on digital ad consumers and lowering costs on platform like google, Meta, LinkedIn and likewise.

Additionally, this shift may influence the broader international tax landscape for digital transactions involving India. We believe this reform could have positive implications for your operations, particularly if you engage with non-resident digital service providers.

Should you wish to discuss how this change might impact your business or require assistance in adapting to the updated tax framework, feel free to reach out to us at info@akmglobal.in.