New Delhi: The government is likely to withdraw the 6% ‘equalization levy’ introduced in 2016 on online advertisement services rendered to Indian businesses by offshore digital economy firms through amendments to the Finance Bill, 2025, to be taken up by Parliament this week, two persons familiar with the development said.
In August, the government had removed a 2% levy that applied to a wide array of services rendered to Indian businesses by offshore tech firms including cloud services and e-commerce services.
The government had then retained the 6% levy that applied to online advertisement services by offshore technology companies that do not have a physical presence in India.
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The equalization levy “shall not apply to any consideration for any specified service received or receivable by a person on or after the first day of April 2025,” one of the persons quoted above said, quoting the proposed amendment.
Queries emailed to the finance ministry seeking comments for the story remained unanswered at the time of publishing.
The move to drop the controversial levy—nicknamed the ‘Google tax’—comes in the wake of ongoing trade talks between the US and India. The proposal is part of amendments to be moved in Parliament regarding the Finance Bill, 2025, which is under debate and will be taken up for approval in the House early this week.
The amendment proposals will be moved when the House takes up the bill for passage, the two persons quoted above confirmed. Discussions on the Finance Bill were continuing late in the evening in the Lok Sabha at the time of going to press.
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The equalization levy applies only if services rendered by offshore digital economy firms to Indian businesses fetch them more than ₹1 lakh a year. The proposed amendment is to introduce a sunset clause in the income tax to phase out the levy from 1 April 2025, a day before US President Donald Trump’s reciprocal tariffs on countries, including India, are to take effect.
Reportedly, the UK too is considering abolishing its digital services tax before 2 April, according to overseas news reports.
Such taxes on tech firms were implemented by several European Union (EU) nations as digital economy firms were seen to be posing a challenge to conventional tax systems based on physical presence of the income-earning entity. A global framework negotiated by Group of 20 (G20) and Organization for Economic Cooperation and Development (OECD) nations to address the tax challenges of digital economy has also fallen apart with the US disavowing its commitments in January.
The proposed change to Indian tax law would now reduce the costs for digital advertisement consumers, while lowering tax costs for digital advertisement platforms such as Google and Meta, said Sandeep Jhunjhunwala, M&A (mergers and acquisitions) tax partner at Nangia Andersen. A tax exemption under regular provisions to payments to offshore entities during the existence of equalization levy, meant to avoid double taxation of the same amount, is likely to be withdrawn.
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The income tax department has been working on issuing a fresh set of rules to determine how foreign companies’ profits derived from India are to be taxed under regular tax provisions, Mint had reported on 11 February.
The 2% levy on e-commerce, dropped last year, had drawn more criticism from the US but, in anticipation of more tariff retaliation by the US, India is trying to show a more accommodative stance and the removal of the 6% levy on online advertising is a step in that direction, said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.
Amendments meant to reduce litigation in electronics manufacturing sector will also be proposed, one of the persons quoted above said.