Key Points:
- The government plans to scrap the 6% Equalisation Levy on online advertisements starting April 1, 2025.
- This move is part of 59 amendments to the Finance Bill-2025, introduced in the Lok Sabha by Minister of State for Finance Pankaj Chaudhary.
- The decision is seen as an effort to ease trade tensions with the US, which had threatened reciprocal tariffs from April 2.
- Tech giants like Google, Meta, and X (formerly Twitter) stand to benefit significantly from reduced tax burdens.
New Delhi: In a major policy shift, the Indian government has proposed abolishing the 6% Equalisation Levy on online advertisements as part of amendments to the Finance Bill-2025. Effective April 1, this decision marks a significant step toward reducing digital advertising costs and simplifying India’s tax structure. The move is expected to benefit advertisers and digital platforms like Google, Meta, and X while addressing international trade concerns.
Background of the Equalisation Levy
Introduced in June 2016, the Equalisation Levy was designed to tax payments made by Indian businesses to foreign digital advertising platforms. It aimed to ensure that multinational tech companies paid taxes on revenue earned from Indian advertisers despite lacking a physical presence in India. In 2020, the scope of this levy was extended to include e-commerce transactions, imposing a 2% tax on such supplies. However, this e-commerce levy was abolished in August 2024.
The removal of the remaining 6% levy on online advertisements signals India’s willingness to align with global tax reforms and ease tensions with trading partners like the US.
Impact on Digital Advertising
The abolition of this levy will significantly lower digital advertising expenses for businesses in India. For tech giants like Google and Meta, it means increased profit margins and reduced operational costs. Advertisers will also find it more cost-effective to run campaigns on these platforms, fostering a more competitive ecosystem for online marketing.
Experts believe this move will encourage startups and small businesses to invest more in digital advertising while benefiting larger corporations already reliant on these platforms.
Diplomatic Implications
The proposal comes amid ongoing trade negotiations between India and the US. Washington had previously criticized India’s digital taxes as discriminatory and threatened retaliatory tariffs starting April 2. By scrapping the Equalisation Levy, India aims to show an accommodative stance and prevent further trade tensions.
Tax experts have welcomed the move as a step toward simplifying income tax laws and addressing concerns raised by partner nations regarding unilateral taxation policies. Vishwas Panjiar, Partner at Nangia Andersen LLP, noted that this decision provides certainty for taxpayers while aligning with global tax norms.
Other Amendments in Finance Bill-2025
Apart from removing the Equalisation Levy, the government has proposed several other changes in the Finance Bill-2025:
- Simplification of provisions related to offshore fund investments.
- Clarifications on tax assessments under search and seizure proceedings.
- Introduction of “Total Undisclosed Income” terminology for better reconciliation of income tax returns.
These amendments aim to streamline India’s tax regime and foster a business-friendly environment.
Looking Ahead
If passed in Parliament, the removal of the Equalisation Levy will take effect from April 1. This decision is expected to reshape India’s digital advertising landscape while strengthening its position in global trade discussions. With reduced costs for advertisers and tech platforms alike, this policy change could pave the way for greater innovation and growth in India’s digital economy.
