Equalisation Levy on online advertisements to be abolished from April 1

The government on Monday proposed to abolish the Equalisation Levy or digital tax on online advertisements from April 1, a move that will benefit advertisers on digital platforms like Google, X and Meta.

These changes are part of the 59 amendments to the Finance Bill introduced by Minister of State for Finance Pankaj Chaudhary in the Lok Sabha.

As part of the amendment, effective April 1, 2025, the 6% Equalisation Levy on online advertisements will be abolished. This will reduce the tax burden on digital ad consumers and costs on platforms like Google, X and Meta.

The Equalisation Levy on online advertisement services was imposed on June 1, 2016.

As per the amendments proposed in the Lok Sabha, Section 163 of Finance Act,2016, levying the Equalisation Levy will not apply on or after April 1, 2025.

The Equalisation Levy was introduced by the Finance Act 2016 for online advertisement services, provision for digital advertising space, or any other facility or service for the purpose of online advertisement only.

The Finance Act 2020 has extended the scope of this levy to e-commerce supplies and services made on or after April 1, 2020. This 2% Equalisation Levy on ecommerce transactions was abolished on August 1, 2024.

As per the amendment to the Finance Bill 2025, the levy on online ads will now be abolished from April 1, 2025.

The proposal to remove the Equalisation Levy on online advertisements, according to experts, is aimed at showing an accommodative stance to the US, which has threatened to introduce reciprocal tariffs from April 2.

Deloitte India Partner Sumit Singhania said the government’s move to do away with the Equalisation Levy in its entirety is in sync with the present endeavour of carrying out simplification of income tax legislation.

AKM Global Tax Partner Amit Maheshwari said although the 2% levy garnered more criticism from the US, in anticipation of more tariff retaliation by them, the government is trying to show a more accommodative stance.

"The removal of the 6% Equalisation Levy on online advertising is a step in that direction. However, it remains to be seen if this step, coupled with already ongoing diplomatic measures, would lead to any softening of stance by the US," Maheshwari said.

Nangia Andersen LLP Partner Vishwas Panjiar said the government's move to propose the abolition of the Equalisation Levy altogether is a step in the right direction, as it not only brings certainty to taxpayers but also addresses the concerns raised by partner nations (like the US) regarding the unilateral nature of the levy.

Besides, the removal of the Equalisation Levy, the government has also proposed amendments to make offshore fund investments less onerous and came out with changes relating to tax assessments under search and seizure provisions and reconciliation of income tax returns.

"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 of search and seizure proceedings is to bring only undisclosed income to tax," Maheshwari said.