Abolition of Equalisation Levy on Online Advertisements

March 25, 2025

The Government of India proposed the abolition of the Equalisation Levy on online advertisements on March 24, 2025. This move is part of 59 amendments to the Finance Bill 2025, currently debated in the Lok Sabha. The proposal is seen as an effort to encourage better relations with the United States, which has threatened reciprocal tariffs. The Equalisation Levy was primarily aimed at foreign companies providing digital advertising services in India.

Background

The Equalisation Levy was introduced on June 1, 2016. It imposed a 6% tax on payments made for online advertisement services. This tax targeted large foreign corporations, such as Google and Meta, that benefited from India’s digital market without paying local taxes. In 2020, the scope of this levy was expanded to include e-commerce transactions, although this was later abolished in 2024.

Recent Developments

The recent proposal to abolish the 6% Equalisation Levy follows the earlier removal of a 2% levy on e-commerce transactions. Experts suggest that this decision reflects the government’s desire to mitigate tensions with the US over trade issues. The US had expressed concerns about the unilateral nature of the levy and threatened tariffs in response.

Implications for Taxpayers

The removal of the Equalisation Levy is expected to provide clarity and certainty for taxpayers. It addresses concerns raised by international partners regarding the fairness of such taxes. The government aims to create a more conducive environment for foreign investments in India’s digital economy.

Amendments to the Finance Bill 2025

In addition to the abolition of the Equalisation Levy, the Finance Bill 2025 includes several amendments aimed at simplifying tax assessments. These changes focus on search and seizure provisions and the introduction of the term “Total Undisclosed Income”. This clarification aims to ensure that only undisclosed income is taxed during search and seizure proceedings.

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