The Equalisation Levy: India’s Digital Ad Tax (2016

India taxed foreign tech giants like Google and Facebook before it taxed almost anyone else this way. The Equalisation Levy, introduced in 2016, was one of the world’s earliest “digital taxes.” This article covers its introduction, its later expansion, and its full withdrawal by 2025.

North Block, New Delhi — seat of India’s Ministry of Finance, which administered the Equalisation Levy. Photo: Atulburnwal, Wikimedia Commons, CC BY-SA 3.0.

📑 Contents

1Must Know
2Good to Know
3Test Yourself
4Great to Know
5Current Affairs

🔑 Must Know

1. What the Levy Was and When It Started

2016. India introduced the Equalisation Levy through the Finance Act, 2016. It took effect on 1 June 2016.
6% rate. It charged 6% on payments made to a non-resident for online advertisement services. This applied when a resident payer’s annual payments crossed ₹1 lakh.
“Google tax.” Because Google and Facebook were the levy’s biggest targets, news reports nicknamed it the “Google tax.”

2. Outside the Income Tax Act, By Design

Standalone law. The Equalisation Levy was never part of the Income Tax Act, 1961. It sat in its own chapter of the Finance Act, 2016, Chapter VIII.
Why it matters. This structural choice meant the levy also sat outside India’s existing tax treaties. A non-resident paying it couldn’t treat it as an income tax paid abroad.
No DTAA credit. A non-resident company paying the levy could not claim a matching foreign tax credit at home under a Double Taxation Avoidance Agreement. Legal scholars flagged this as a case of “juridical double taxation.”

📊 Good to Know

1. The 2020 Expansion to E-Commerce

2% levy. The Finance Act, 2020 added a second, separate 2% Equalisation Levy. It applied to non-resident e-commerce operators, effective 1 April 2020.
Scope. This 2% levy covered online sale of goods and services by, or facilitated by, a non-resident e-commerce operator. It reached far more businesses than the original 6% ad levy did.

2. Who Actually Collected It

6% levy. An Indian resident (or a non-resident with an Indian permanent establishment) making the ad payment had to deduct the levy and deposit it with the government.
2% levy. By contrast, the non-resident e-commerce operator itself had to pay this levy directly — not the Indian buyer.

Test Yourself

🌟 Great to Know

1. The Full Withdrawal, 2024–2025

2% levy dropped. Budget 2024-25 withdrew the 2% e-commerce levy. It stopped applying to payments received on or after 1 August 2024, under the Finance (No. 2) Act, 2024.
6% levy dropped. The Finance Act, 2025 then withdrew the original 6% online-advertisement levy too, effective 1 April 2025. By then, the Equalisation Levy no longer existed in any form.
Why it ended. The government cited compliance complexity and international friction, including tariff pressure the US had threatened over the “Google tax,” as reasons to scrap it.

The 2018 UPSC Question on the Equalisation Levy

UPSC’s 2018 Prelims tested this levy while it was brand new, only two years old. It asked whether the levy sat inside the Income Tax Act, and whether payers could claim a DTAA tax credit for it.

Both claims are wrong. The levy was introduced through the Finance Act, 2016, kept deliberately separate from the Income Tax Act, 1961. And because it sat outside India’s tax treaties, non-resident entities paying it could not claim a matching credit at home.

Previous Year Questions

Asked as: “With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?” (UPSC CSP 2018, GS Paper I). View this question.

📰 Current Affairs

1. The Levy Is Now Fully Withdrawn (as of April 2025)

Timeline. As of April 2025, both the 2% and 6% Equalisation Levies have been withdrawn. The 2% e-commerce levy ended 1 August 2024; the 6% advertisement levy ended 1 April 2025. (Source: India Briefing)
Trade context. The 6% levy’s withdrawal came shortly before the US was set to impose reciprocal tariffs in April 2025. Commentators linked the timing to easing that trade friction. (Source: National Foreign Trade Council)
What replaces it. With the Equalisation Levy gone, non-resident digital businesses without an Indian permanent establishment fall back on ordinary income-tax and Significant Economic Presence rules instead. (Source: Budget 2025-26 Speech, Ministry of Finance)