The government on Monday proposed abolishing the equalisation levy (EL) or digital tax on online advertisements starting April 1, as part of the 59 amendments to the Finance Bill 2025, which is being debated in the Lok Sabha.
The move, which affects a number of American tech giants, is seen as part of a bouquet of pre-emptive measures, including reduction of import duties on high-end/luxury vehicles, to ward off the threat of retaliatory tariffs by the US on April 2.
The Finance Ministry has accordingly added reduction of the levy as a part titled ‘Amendments to the Finance Act 2016’ in the list of official amendment in the Finance Bill 2025. The levy is charged at 6 per cent in respect of the sum received or receivable by a non-resident for online advertisement services. In 2020, EL was also imposed on non-resident e-commerce operators. The rate was 2 per cent, but it was removed in 2024.
Accommodative stance
Amit Maheshwari, Tax Partner at AKM Global, said the 2 per cent levy garnered more criticism from the US but in anticipation of more tariff retaliation, the Centre is trying to show a more accommodative stance and the removal of 6 per cent EL on online advertising is a step in that direction. “It remains to be seen if this step coupled with already ongoing diplomatic measures would lead to any softening of stance by US,” he said.
According to Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen, the withdrawal of EL would now reduce the costs for digital ad consumers, while lowering tax costs for digital advertisement platforms such as Google and Meta. “The corresponding income tax exemption under Section 10 (50) has been withdrawn to maintain tax neutrality, meaning income previously exempt under the EL regime will now be taxed under regular income tax provisions,” he said.
Sumit Singhania, Partner at Deloitte India, said even from an international tax policy standpoint, unilateral measures undertaken by the government to deal with tax challenges of digitalisation of economies have to be steadily wound back to make way for uniform tax rules under two pillar solutions espoused by OECD.