India is set to remove the 6 percent equalisation levy—commonly referred to as the digital tax—on online services, including advertising. This initiative aims to reduce costs for major US technology companies such as Google (Alphabet), Meta, and Amazon, and is anticipated to address US trade concerns while strengthening economic relations between the two nations.

The central government has proposed abolishing the equalisation levy on online advertisements effective April 1, 2025. The measure, detailed in the Finance Bill 2025, was introduced to Parliament on March 24 and subsequently received approval from both the Lok Sabha and the Rajya Sabha. It now awaits presidential assent.

While the removal of the digital tax will likely benefit US technology firms, India also signals its intent to align domestic tax regulations with international standards under the Organization for Economic Cooperation and Development’s (OECD) “Pillar One” framework. Nevertheless, this decision carries significant implications for various stakeholders, including advertisers, Indian ad agencies, local media entities, and the digital economy at large.

Understanding the Equalisation Levy (EL)

Introduced in 2016, the digital tax was established to impose taxation on cross-border digital advertising transactions. Targeting non-resident digital platforms generating income from Indian advertisers without a physical presence in India, the levy applied a 6 percent rate on gross payments made by Indian businesses to foreign platforms, where invoices were issued outside India and payments conducted in foreign currency. The primary aim was to provide parity for domestic digital platforms, which are subject to Indian income tax, unlike their global counterparts.

Implications for Global Digital Platforms

Global technology firms—including Google, Meta, and Amazon—that constitute approximately 65 percent of India’s INR 500 billion (US$5.82 billion) digital advertising market, stand to gain significantly from this policy shift. Advertisers who previously accounted for the 6 percent levy in their media planning will see reduced costs, enhancing the attractiveness of these platforms.

Although originally intended to counter base erosion and profit shifting, the levy resulted in elevated advertising rates and diminished return on investment (ROI) for Indian enterprises. Additionally, operational compliance was often cumbersome, necessitating quarterly filings and supplementary administrative tasks for agencies orchestrating multi-platform campaigns.

Impact on Indian Ad Agencies

For Indian advertising agencies, the elimination of the EL presents both opportunities and challenges. On one hand, it reduces compliance obligations, particularly for firms managing international invoicing and complex advertising portfolios. The resulting operational efficiencies may benefit larger agencies working with international clients.

Conversely, the absence of the levy could heighten competitive pressures from global platforms. As advertising rates on foreign platforms become more competitive, domestic ad networks and publishers may lose their previous pricing advantage. Smaller Indian agencies, which previously benefited from the protective impact of the levy, may encounter increased difficulty competing against multinational platforms offering lower costs and superior ROI.

The overall effects will vary according to agency scale; larger agencies serving international clients may experience operational relief, while smaller firms focused on domestic markets may face heightened competition.

Broader Implications for India’s Tax Policy

By harmonising its tax structure with international norms, India seeks to diminish trade frictions and attract foreign investment. Industry experts suggest that eliminating the levy will simplify the country’s digital tax regime, lower operational barriers in media planning, and foster a more integrated digital advertising ecosystem. This move demonstrates India’s willingness to cooperate with global tax standards and may improve its reputation within the international business community.

Shifts in Digital Advertising Trends

As India’s digital advertising landscape continues to evolve, brands are increasingly adopting data-centric approaches. With growing regulatory complexity around taxation and privacy, there is an increased emphasis on first-party data for improved targeting and retargeting. Industry analysts have observed this transition is fuelling the development of technology-driven media ecosystems.

This progression towards data-driven solutions reflects broader industry trends, with brands leveraging advanced technology to optimise advertising strategies. As India’s digital ecosystem matures, the sector is expected to embrace innovative approaches that support enhanced targeting, improved ROI, and streamlined media operations.

Background on EL Expansion and Revisions

India initially implemented the EL to tax offshore entities earning revenue from online advertising targeting Indian consumers. In 2020, the scope of the levy was expanded to include a 2 percent charge on a wide array of digital services provided by non-resident entities, covering software-as-a-service (SaaS), cloud services, platform services, financial and data-related services, online education, and digital sales of goods.

The expansion drew criticism from the United States Trade Representative (USTR), who considered the measures discriminatory toward US digital firms. In 2021, the USTR highlighted concerns regarding the disproportionate impact on American companies, raising the possibility of retaliatory trade actions. To address these issues, India entered into a transitional arrangement, similar to those adopted by Austria, France, Italy, Spain, and the UK. This arrangement remained until the finalisation of a global tax framework under the OECD’s BEPS 2.0 initiative.

Due to delays in establishing the global deal—including Pillar One (addressing base erosion and profit shifting) and Pillar Two (introducing a minimum tax rate of 15 percent)—the arrangement has been extended until June 2024. Effective August 1, 2024, India abolished the 2 percent equalisation levy, retaining only the 6 percent levy on online advertising revenue.

Also read: India Abolishes 6% Equalisation Levy on Online Advertising Effective April 1, 2025

Conclusion

India’s decision to revoke the 6 percent EL represents a strategic shift with widespread ramifications for stakeholders throughout the digital ecosystem. While it is expected to ease compliance requirements, strengthen US-India trade relations, and foster greater competition in digital advertising, it also introduces challenges for Indian ad agencies and domestic platforms previously sheltered by fiscal protections. As India brings its tax policies into alignment with global standards, businesses must adapt to a rapidly changing environment marked by operational agility, data-driven strategies, and technological innovation.