In a major relief to digital advertisers and tech companies, the Union Budget 2025 has proposed the withdrawal of the Equalisation Levy (commonly known as Google Tax) on non-resident e-commerce companies. This move is aligned with international tax reforms under the OECD framework.
Let’s break down what this means for businesses and individual advertisers in India.
What Was Google Tax or Equalisation Levy?
Introduced in 2016, Equalisation Levy was designed to tax digital transactions by foreign companies who earned from Indian advertisers but didn’t have a permanent establishment in India.
Key Highlights Before Budget 2025:
– 6% levy on payments made to non-resident companies (like Google, Facebook) for online ads
– 2% levy on e-commerce supply of goods/services by non-residents (from April 2020)
– It was deducted by the payer (Indian entity) at source
What Changed in Budget 2025?
✅ Complete removal of 6% Equalisation Levy
Applicable from 1st April 2025, payments to foreign tech giants for digital advertising will no longer attract the 6% tax.
✅ Transition plan announced for 2% levy
A phased rollback is expected for the 2% levy on e-commerce operators. Details awaited from CBDT.
Why Was It Withdrawn?
1. OECD-G20 Global Tax Agreement:
– India signed a multilateral framework to allocate taxing rights fairly
– Equalisation Levy was always a temporary measure
2. Double taxation concerns:
– Companies paying both income tax abroad and Equalisation Levy in India
3. Boost to digital businesses:
– Reduction in cost for startups and advertisers relying on Google, Facebook, Amazon, etc.
Impact on Indian Advertisers & Tech Users
👍 Lower Advertising Costs
Advertisers no longer need to gross up payments or bear the 6% extra cost on platforms like:
– Google Ads
– Meta/Facebook Ads
– YouTube ads
👨💻 No TDS confusion
Earlier confusion existed if TDS and Equalisation Levy were both applicable. This change reduces compliance.
💼 Startups & SMEs benefit the most
Small businesses with limited budgets will see more ad value per rupee spent.
What Should Advertisers Do Now?
– Review contracts with ad platforms after April 2025
– Stop deducting 6% levy from payments made to Google, Meta, etc.
– Keep invoice proof and update accounting software
FAQs
Q1. Is Equalisation Levy abolished completely?
The 6% levy on online ads is abolished. The 2% levy on e-commerce supply is being reviewed.
Q2. Should we still deduct TDS on Google or Meta ads?
No TDS is required unless they have a PE in India. Consult your CA for specific scenarios.
Q3. Will this make ads cheaper for freelancers too?
Yes, freelancers, sole proprietors, and even small LLPs benefit as the extra 6% burden is removed.
Q4. Is this part of an international agreement?
Yes. India’s move is part of the OECD Pillar One tax reform initiative supported by 140+ countries.
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