New Delhi, Mar 26: India is likely to remove the 6% equalisation levy, known as the “Google tax,” on online advertising services provided by foreign tech companies such as Google and Meta. The tax will be scrapped from April 1, 2025, as part of amendments to the Finance Bill, news agency Reuters reported.
The Equalisation Levy was introduced in 2016 to tax payments made by Indian businesses to foreign companies for digital advertising services. It was aimed at ensuring that global tech firms, which generate significant revenue from Indian users but do not have a physical presence in the country, contribute to India’s tax system.
Initially set at 6% for online advertising services, the levy was expanded in 2020 to include a 2% tax on all e-commerce companies with annual business exceeding Rs 2 crore in India. The 2% levy was withdrawn last year following an agreement between India and the United States. Now, the government plans to remove the original 6% tax as well.
The decision to remove the tax is part of India’s efforts to prevent trade conflicts with the United States, which had previously criticised the levy and threatened retaliatory tariffs of up to 25% on Indian products, including shrimp, basmati rice, and jewellery.
“Removal of the equalisation levy is a smart move by the government, as collections weren’t very high, and it was a concern for the US administration,” Sudhir Kapadia, senior advisor at EY, told Reuters.
The removal of the tax is expected to benefit global tech firms by lowering advertising costs, improving profit margins, and attracting more advertisers to digital platforms. It may also help improve India-US trade relations and reduce the risk of future tariffs.
The move is expected to encourage more foreign investment in India’s digital sector and drive higher spending on digital marketing.
In place of the equalisation levy, the government has proposed removing certain tax exemptions that were previously available to foreign tech companies, meaning that while the levy will be scrapped, these firms may still be taxed under other provisions.
The Finance Bill also proposes amendments to offshore fund management regulations. A key change involves removing the word “indirectly” from a provision that restricted Indian residents from participating in offshore funds.
Anil Talreja, partner at Deloitte India, told Reuters, “The proposed amendments are meant to clarify tax laws and address issues faced by businesses.”
