Finance Bill 2025 Amendment: India Proposes to Scrap 6% Equalisation Levy on Online Ads

On March 24, 2025, the Indian government introduced a significant amendment to the Finance Bill 2025, proposing the removal of the 6% equalisation levy on online advertising services. Commonly referred to as the “Google Tax,” this levy was imposed on payments made to non-resident digital service providers for online advertisements accessed by Indian users.

If this proposal is passed by Parliament, the levy will cease to apply from April 1, 2025, potentially marking a crucial step in aligning India’s tax regime with global standards.

What Was the Equalisation Levy?

The equalisation levy was first introduced in 2016 to bring foreign digital service providers under India’s tax net. Initially targeted at online advertisements, it was expanded in 2020 to include a broader 2% levy on e-commerce transactions involving non-resident companies.

This move was intended to ensure fair taxation of revenues generated by foreign digital businesses from Indian users, particularly when these entities lacked a physical presence in the country.

Concerns and Global Pushback

India’s digital taxation measures have faced sustained criticism from the United States, whose technology companies such as Google and Meta were among the most affected. In 2021, the US Trade Representative (USTR) published a report labelling the equalisation levy as discriminatory, arguing it disproportionately impacted US-based digital firms.

Despite these objections, India defended the tax, asserting it was necessary to ensure equity in cross-border digital transactions and to prevent revenue leakage.

Policy Evolution and Gradual Rollback

The Indian government has, over time, recognised the complexities and international concerns associated with digital taxation. In the Union Budget 2024, a proposal was made to withdraw the 2% equalisation levy on e-commerce services, effective from August 1, 2024.

However, the 6% levy on online ads remained in force—until now.

The recent amendment to the Finance Bill 2025 appears to be a continuation of India’s phased approach to digital tax reforms, gradually moving towards a more standardised and globally acceptable framework.

Industry Implications

According to a report, India had introduced the concept of Significant Economic Presence (SEP) to target foreign digital companies, thereby building a comprehensive digital tax structure.

The removal of the 6% levy could reduce costs for Indian consumers and advertisers, and is likely to benefit multinational tech firms by removing an additional layer of tax compliance.

What Lies Ahead

While this amendment still awaits parliamentary approval, it reflects India’s intent to support a more harmonised global tax regime. The proposal may also strengthen India’s diplomatic position, showing goodwill in negotiations around international digital tax frameworks spearheaded by the OECD and G20 nations.

Conclusion

The removal of the 6% equalisation levy on online advertising, if enacted, would signal a major shift in India’s digital tax policy. As the country repositions itself in the evolving global digital economy, this move may pave the way for more balanced and collaborative taxation practices in the future.

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