The Indian government has decided to remove the 6% equalisation levy, popularly known as the “Google tax“, on foreign digital advertising services. This change, effective from April 1, 2025, is part of amendments to the Finance Bill, 2025. The move is expected to strengthen trade relations with the US and benefit major tech companies like Google, Meta, and Amazon.
What is Equalisation Levy?
The equalisation levy was introduced in 2016 to tax payments made by Indian businesses to foreign companies for digital advertising. It aimed to “equalise” the tax burden between Indian and foreign e-commerce firms.
In 2020, India also introduced a 2% equalisation levy on foreign e-commerce platforms operating in India. However, this tax was criticised by the US, which called it “unfair” to American companies. As a result, India scrapped the 2% levy in 2024.
Why is India Removing the 6% Levy?
The removal of the tax is seen as a step to ease trade tensions between India and the US. The US had earlier threatened to impose retaliatory tariffs on Indian exports like shrimp and basmati rice in response to this tax. India is now showing a cooperative stance to prevent such trade disputes.
Experts believe this move will also boost foreign investment in India’s digital economy by reducing advertising costs on platforms like Google and Meta. This could encourage more businesses to invest in digital ads, leading to increased ad revenue for these platforms.
Impact of Removing the Google Tax
- Lower Digital Advertising Costs: Indian businesses will pay less for ads on platforms like Google and Meta.
- Stronger India-US Trade Relations: The removal may help resolve trade disputes between the two nations.
- Boost for Foreign Tech Companies: Companies like Google, Meta, and Amazon will see improved profit margins.
- Increased Foreign Investment: A more business-friendly tax policy could attract more investment in India’s digital sector.
Government’s Next Steps
While the equalisation levy will be removed, the government is planning to introduce new tax regulations for foreign tech firms to maintain a balanced tax framework. Other amendments to the Finance Bill include changes in offshore fund management rules to attract more funds to India.
This decision marks a significant shift in India’s digital tax policy and is expected to bring long-term benefits to businesses, advertisers, and the overall economy.
