Indian Government Abolishes Equalization Levy On Online Advertisements From 1 April

Indian Government Abolishes Equalization Levy On Online Advertisements From 1 April

This will benefit advertisers on digital platforms like Google, X and Meta.

The Government of India proposes to abolish the six percent Equalization Levy (digital tax) on online advertisements from 1 April 2025. It was imposed on 1 June 2016.

The changes are part of the 59th amendments to the Finance Bill introduced by Minister of State for Finance Pankaj Chaudhary in the Lok Sabha. It is as per the amendments under Section 163 of the Finance Act, 2016

It will reduce the tax burden on digital ad consumers and costs on platforms like Google, X and Meta.

The digital tax was introduced for online advertisement services, provision for digital advertising space, or any other facility or service for online advertisement.

The Finance Act, 2020, extended its scope to e-commerce supplies and services made on or after 1 April 2020. The two percent levy was abolished on 1 August 2024.

Experts claim that the proposal to remove the tax is to show an accommodative stance to the United States, as the administration of President Donald Trump threatened to introduce reciprocal tariffs from 2 April.

Sumit Singhania, Partner at Deloitte India, said the government's move to do abolish the tax was in sync with its endeavor to simplify the Income Tax legislation.

Meanwhile, Amit Maheshwari, tax partner at AKM Global, stated that though the two percent levy garnered more criticism from the US, in anticipation of more tariff retaliation, the government has taken a more accommodative stance. However, it is to be seen if the step, coupled with ongoing diplomatic measures, would lead to any softening of stance by the US.

Nangia Andersen LLP Partner Vishwas Panjiar said the government's move was a step in the right direction. It brings certainty to taxpayers and addresses the concerns raised by partner nations (like the US) regarding the unilateral nature of the levy.

Besides the removal of the Equalization Levy, the government has also proposed amendments to make offshore fund investments less onerous. It has introduced changes to tax assessments under search and seizure provisions and reconciliation of Income Tax Returns.

AKM Global’s Maheshwari added, "Several amendments have been made to provisions related to search and seizure assessment. The government has added the new term Total Undisclosed Income to clarify that the intent was to tax only undisclosed income.”