Govt proposes scrapping 6% equalisation levy on online ads

The proposal to remove the equalisation levy on digital services comes at a critical juncture, ahead of trade discussions with the US, signalling a shift in India’s trade strategy and potentially preventing the imposition of reciprocal tariffs

The government has proposed a significant change to the taxation of online advertising services with the removal of the 6% equalisation levy on services provided by non-resident entities, benefiting global tech giants such as Google, Meta, and X. This proposal, part of the 59 amendments to the Finance Bill, 2025, was introduced by Minister of State for Finance, Pankaj Chaudhary, in the Lok Sabha on Monday (March 24).

The government proposal comes at a crucial time, ahead of trade discussions between India and the United States, which could involve the imposition of reciprocal tariffs by the US. The equalisation levy, which had been applied to digital services from foreign companies, will now be scrapped, signalling a shift in India's approach to its trade relations with the US. The change primarily impacts global companies such as Google and Meta, who have been subject to this levy on their online advertising revenue in India.

Along with the removal of the 6% equalisation levy, the government also proposed to remove the corresponding income-tax exemption under Section 10(50). This means that revenue generated from online advertising services will now fall under the regular tax regime, subject to income tax. This proposal is part of the broader tax changes, reflecting the government's adaptation to the evolving digital economy.

Amit Maheshwari, tax partner at AKM Global, commented that the removal of the levy on online ads is part of India's efforts to take a more accommodative stance ahead of potential tariff retaliation by the US. However, Maheshwari noted that it remains to be seen whether this change will sufficiently ease US concerns about tax on digital services.

Pension reforms and tax simplifications

The Finance Bill also introduces other significant amendments, including reforms to pension regulations. These amendments aim to validate the Central Civil Services (Pension) Rules and address a recent Supreme Court ruling, which struck down distinctions between pensioners based on their retirement date. The Bill clarifies that pension benefits will be determined based on the date of retirement, ensuring that new pay commission benefits are applicable only prospectively.

Further, the Bill includes changes to Sections 44BBD, 44DA, and 115A of the Income Tax Act, focusing on simplifying tax provisions for foreign electronics manufacturers. The new provisions are expected to prevent legal disputes, particularly in sectors like oil and gas, where similar issues had previously arisen.

Overall, the proposed amendments in the equalisation levy and other reforms reflect the government's efforts to simplify tax regulations, enhance compliance, and strengthen trade relations, particularly with the US.