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Context:

Government to abolish the Equalisation Levy, or digital tax, on online advertisements, effective from April 1, 2025.

About Equalisation Levy

It was introduced in June 2016, to charge a 6% tax on online advertisement services provided by foreign companies operating in India.

It especially targeted digital advertising platforms like Google, Meta (Facebook), and X (formerly Twitter).

The objective was to ensure that the global tech giants contributed their fair share to India’s tax revenue, even if they don't have a physical presence in the country.

Over time, the scope of the Equalisation Levy expanded to include e-commerce transactions, with a 2% tax introduced in 2020, however, the 2% levy was abolished in August 2024.

Why did the government decide to abolish the Equalisation Levy?

The central government has decided to abolish the 6% Equalisation Levy on online advertisements as part of 59 amendments to the Finance Bill.

It is a strategic move by the Indian government aims to:

Reduce the tax burden on advertisers and digital platforms.
Promote better trade ties with key partners like the United States, which had threatened to impose reciprocal tariffs from April 2, 2025.
Align with global tax reforms; balance domestic interests with international trade priorities.

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EQUALISATION LEVY

Source:

TIMES OF INDIA

PRACTICE QUESTION

Q. Which of the following is the core objective of imposing the Equalisation Levy?

A) To promote domestic digital businesses by making foreign digital services more expensive.

B) To ensure fair competition between domestic and foreign companies providing digital services in India.

C) To generate additional revenue for the government to fund infrastructure projects.

D) To comply with international taxation norms set by organizations like the UN.

Answer: B

Explanation:

The Equalisation Levy was introduced to create a fair playing field for domestic businesses by taxing foreign companies that offer digital services in India, but do not have a physical presence in the country. This ensures that both domestic and foreign players are subject to similar tax obligations, promoting fair competition.

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