Introduction
The Indian government has officially withdrawn the 6% Equalisation Levy (EL)—commonly known as the "Google Tax"—which was previously imposed on online advertisement revenues earned by foreign digital companies. This change, introduced through the Finance Bill 2025, came into effect on April 1, 2025, following parliamentary approval.
The move marks a significant pivot in India's digital taxation policy and brings the country more in line with the emerging global consensus on how to tax digital economies fairly and efficiently.
Background
India introduced the Equalisation Levy ("Google Tax") in 2016 to tax non-resident digital companies that earned advertising revenue from Indian businesses, despite having no physical presence in India. The original levy imposed a 6% tax on online ad services and targeted large foreign tech companies monetizing Indian user data and engagement.
In 2020, the government expanded the regime with EL 2.0, which imposed a 2% levy on e-commerce operators offering goods or services online. However, EL 2.0 was abolished in August 2024, and as of April 1, 2025, the original 6% "Google Tax" on online advertising has also been formally scrapped.
Why Was It Withdrawn?
Finance Minister Nirmala Sitharaman explained that the withdrawal is part of a long-term effort to rationalize India's tax framework and make compliance easier for businesses, particularly as India seeks to position itself as a global manufacturing and digital services hub.
While the move is framed as a domestic reform, it also comes at a diplomatically strategic time. Trump previously threatened to announce reciprocal tariffs on Indian exports starting April 2, 2025, and removing the Equalisation Levy addresses a core concern raised by the U.S. government in digital trade negotiations. FYI, starting April 9, Indian goods will face tariffs of up to 27% (Trump's tariff chart lists India's rate as 26%, but the official order says 27%). [1]
Impact on the Industry
The industry has strongly welcomed the scrapping of the so-called Google Tax. The Information Technology Industry Council (ITI) noted that such levies created artificial barriers, complicated cross-border digital trade, and targeted foreign companies unfairly.
The removal of the levy is expected to ease the tax and compliance burden on foreign digital firms, possibly influencing advertising costs, business contracts, and profit allocation models. Legal and tax professionals should monitor the broader policy shifts and assist clients in updating digital tax strategies and reporting obligations.
Conclusion
India's decision to eliminate the 6% Equalisation Levy (Google Tax) on online advertisements is a landmark development in its digital tax policy. Although presented as part of India's broader tax rationalization reforms, the move also has important geopolitical and trade implications.
For legal advisors, in-house counsels, and tax strategists, this is an opportunity to revisit existing cross-border digital tax positions, update documentation, and support business teams. As the international framework for taxing the digital economy continues to evolve, professionals must stay alert to changes in both domestic policy and global standards.
References
1. https://www.bbc.com/news/articles/c367p03059yo
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