As the Centre moves forward with securing parliamentary approval for the Union Budget 2025, the government has introduced a fresh amendment to the Finance Bill 2025. On Monday (March 24), it proposed removing the 6% equalisation levy on online services under direct taxes."
The 6% levy, popularly known as the "Google Tax," was primarily imposed on online advertising services. Once abolished, this move is expected to ease the tax burden on Indian consumers of digital advertising.
If the proposal is approved by Parliament, the levy will no longer apply starting April 1, 2025.
The removal of the levy is expected to benefit companies selling online advertising space, particularly major US-based tech giants like Google and Meta.
Vishwas Panjiar, Partner, Nangia Andersen LLP, said, "The equalisation levy was always an imperfect and symptomatic solution to bring digital transactions under taxation until a global, all-encompassing consensus was reached among countries. In addition to the equalisation levy, India also introduced the concept of Significant Economic Presence (SEP) in its domestic law to target foreign companies with a substantial online presence in India. The government’s proposal to abolish the equalisation levy altogether is a step in the right direction, as it not only provides certainty to taxpayers but also addresses concerns raised by partner nations, such as the US, regarding the unilateral nature of the levy."
The Equalisation Levy was first introduced in 2016 to ensure foreign digital service providers paid their fair share of taxes on revenue generated from Indian users.
Over the years, the US has strongly opposed the tax, demanding a complete rollback. Despite this, India expanded the levy in 2020, adding a 2% tax on e-commerce transactions involving foreign companies.
The government argued that these levies helped regulate cross-border digital transactions and ensured fair taxation. However, in 2021, a report by the US Trade Representative (USTR) criticised the expanded levy as discriminatory, stating that it disproportionately affected US-based firms.
The 2% tax covered a broad range of services, including software-as-a-service (SaaS), cloud services, financial services, education services, and digital sales.
Recognising these concerns, India began rolling back parts of the levy. In the Union Budget 2024, Finance Minister Nirmala Sitharaman proposed removing the 2% equalisation levy on e-commerce services, effective August 1, 2024.
However, the 6% levy on online advertising remained in place.
With the latest amendment to the Finance Bill 2025, experts believe India is furthering its commitment to gradually reducing digital taxation.
"The government had already removed the 2% equalisation levy on e-commerce last year. By proposing to eliminate the 6% levy on online advertising, India is signaling a more accommodative stance towards the US. This will reduce the cost borne by Indian consumers of digital advertising on global platforms," said Amit Maheshwari, tax partner at AKM Global.
However, Maheshwari noted that it remains to be seen whether this move, along with ongoing diplomatic efforts, will lead to a softening of the US stance on India’s digital taxation policies.
Anil Talreja, Partner, Deloitte India, said, "The proposed amendments to the Finance Bill, 2025, are primarily clarificatory. They align with the government’s objective of addressing doubts and challenges faced by taxpayers and businesses. At the same time, the government remains focused on finalising the new Income Tax Bill, set to take effect from 1 April 2026. Several stakeholder consultations are underway to gather feedback and suggestions for shaping this new tax framework."
Pranav Sayta, Partner and National Leader, International Tax and Transaction Services, EY India, said, "The amendments provide greater clarity in tax laws. For instance, the presumptive tax provisions under the new Section 44BBD—applicable to non-residents providing services or technology for setting up electronics manufacturing facilities—will apply even if the non-resident has a permanent establishment in India. Additionally, the special tax rates under Section 115A will not apply in such cases. The amendments also introduce substantive changes. The 6% equalisation levy on non-residents, applied to consideration received for online advertisements and related services, will be removed for payments received or receivable from 1 April 2025. Regarding the assessment of undisclosed income found during searches, it appears that the pre-2003 block assessment regime is being reintroduced in some form."
The reaction from global tech giants like Google and Meta will be closely watched in the coming weeks.
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