The equalisation levy was a direct tax on certain digital transactions with non-resident providers. In brief: as of August 2026 it is no longer applicable.
The 2% e-commerce levy was withdrawn for transactions on or after 1 August 2024, and the 6% online-advertising levy was withdrawn on or after 1 April 2025 through the Finance Act 2025.
So both arms of the tax, often nicknamed the "Google tax", have now been repealed, and payments to non-resident digital majors are examined under ordinary income-tax rules instead.
This matters mostly to Indian businesses that make cross-border payments; if you are on the receiving side of cross-border payments for service exporters, the levy never touched your inbound export receipts.
This is a maintenance topic with falling search demand, but the "is it still active" question is genuine.
Below is what the levy was, a timeline, what replaced it, worked examples with real ₹ numbers, and the residual compliance that lingers for older years. This is general information, not tax advice, so confirm your position with a CA.
What was the equalisation levy?
The equalisation levy was introduced to tax the Indian-market revenue of foreign digital companies that had no taxable presence in India under conventional rules.
Because a non-resident could earn from Indian users without a permanent establishment, the traditional corporate-tax net missed that income.
It came in two forms:
- The 6% advertising levy: Charged on payments to non-residents for online advertising and digital ad space. The Indian payer deducted and deposited it.
- The 2% e-commerce levy: Charged on the consideration earned by non-resident e-commerce operators from supplies to Indian users. The operator paid it directly.
Importantly, the levy sat outside the Income-tax Act, so it was not affected by tax treaties. That design let India collect regardless of the double-tax-avoidance agreement a provider's home country had.
It also meant there was no treaty relief to claim and no credit to set off, which made the charge blunt but easy to administer.
Is the equalisation levy still applicable in 2026?
No. Is the equalisation levy still applicable in 2026? For fresh transactions, the answer is no, on both counts.
The 2% arm ended for transactions on or after 1 August 2024 and the 6% arm ended for transactions on or after 1 April 2025. From 1 April 2025 onwards, neither rate applies to new spend.
The nuance is that the levy is not simply "gone" for every purpose. It still governs older transactions dated before those cut-offs, and the income-tax exemption that shielded levy-covered income sunsets in AY 2026-27.
So the accurate statement in 2026 is that the equalisation levy is inactive for new transactions but not yet fully closed as a compliance file for the transition years.
That two-speed reality is why practitioners answer the question with a date attached rather than a flat yes or no. New payment: no levy. Old payment: check the date.
Is the equalisation levy abolished, and when?
The rise and fall of the levy spans nine years. The table below sets out the key dates that answer whether the equalisation levy is abolished.
| Date | Event |
|---|---|
| 2016 (Finance Act 2016) | 6% levy on online advertising services introduced |
| 2020 (Finance Act 2020) | 2% levy on non-resident e-commerce operators introduced |
| 1 August 2024 | 2% e-commerce levy withdrawn |
| 1 April 2025 | 6% advertising levy withdrawn by the Finance Act 2025 |
| AY 2026-27 | Section 10(50) income-tax exemption for levy-covered income sunsets |
The two-step removal is why the answer to "is it abolished" depends on which levy and which year you mean.
By 1 April 2025 both were gone for fresh transactions, so the everyday answer today is yes, it is abolished for new spend.
Why was the equalisation levy abolished?
Two pressures converged. First, the levy drew sustained objection from trading partners, especially the United States, which viewed such unilateral digital taxes as discriminatory. Withdrawing it eased that friction.
Second, the global tax project on taxing the digital economy shifted the ground under unilateral measures. As the international framework matured, India chose to retire its own levy rather than keep a parallel charge that partners disputed.
The result is that the special standalone tax is gone, and the same income now falls to be examined under the mainstream provisions of the Income-tax Act.
What was the equalisation levy 6% on Google ads?
The equalisation levy 6% was the first and better-known arm, and it is why people still ask about equalisation levy on Google ads.
From 2016, an Indian business that paid a non-resident for online advertising or digital ad space, typically Google or Meta, had to deduct 6% from the payment and deposit it with the government.
The charge applied to the gross amount, not the net margin.
So on ₹100 of ad spend billed by a non-resident platform, ₹6 went to the exchequer and ₹94 reached the platform, with the Indian advertiser carrying the deduction and the filing.
There was no permanent-establishment test and no treaty relief to reduce it.
From 1 April 2025, this 6% arm no longer applies to new ad payments. An Indian advertiser buying Google or Meta ads today does not deduct the equalisation levy.
Instead, the payment is examined under ordinary income-tax rules, which may or may not require a deduction depending on the facts.
What was the equalisation levy 2% on e-commerce?
The equalisation levy 2% arm arrived in 2020 and worked differently. It was charged on the consideration a non-resident e-commerce operator earned from supplies to Indian users, and the operator paid it directly rather than the Indian customer deducting it.
The 2% covered a wide sweep of online sales into India by foreign marketplaces and platforms. Because it applied to gross consideration and sat outside treaties, it could reach flows that income tax alone would have missed.
It was withdrawn for transactions on or after 1 August 2024, the first of the two arms to go.
The two arms together explain why the levy had two rates, two liable parties and two withdrawal dates. Keeping them separate is the key to answering almost every equalisation levy question correctly.
What replaced the equalisation levy?
Nothing new was introduced to substitute for the levy. Instead, payments to companies such as Google, Meta and Amazon are now tested against the ordinary cross-border rules that always sat alongside it.
Three lenses now apply:
- Withholding tax: Payments to non-residents are examined for TDS under the Income-tax Act, so the payer may have to deduct withholding tax before remitting.
- Significant Economic Presence: The SEP concept can create a taxable nexus in India for a non-resident with sufficient Indian revenue or user base, even without a physical office.
- Royalty and fees for technical services: Many digital payments are re-characterised as royalty or FTS, then read together with the relevant tax treaty.
Because SEP and treaty analysis feed into how related-party charges are priced, groups with intercompany digital flows should also revisit their transfer pricing in taxation position.
The choice of transfer pricing methods can change the taxable outcome once the levy no longer offers a simple flat charge.
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Who paid the equalisation levy?
The two arms placed the burden differently, so who pays the equalisation levy depends on which arm you mean.
For the 6% advertising levy, the Indian payer, typically a business buying online ads from a non-resident, deducted the levy from the payment and deposited it with the government.
The foreign advertiser bore the economic cost but the Indian business carried the compliance.
For the 2% e-commerce levy, the non-resident e-commerce operator was liable directly on its Indian-market consideration, and paid it itself.
So an Indian advertiser dealing with a foreign platform, and a foreign marketplace selling into India, were the two typical taxpayers. If you were a pure exporter of services receiving money from abroad, you were never in either group.
How was the equalisation levy calculated and paid?
The mechanics were deliberately simple, which was part of the levy's appeal to the government. There was no treaty analysis, no permanent-establishment test and no graduated rate. You applied the flat percentage to the gross consideration.
The main compliance steps were:
- Deduct or self-charge: For the 6% advertising levy, the Indian payer withheld it at the point of payment. For the 2% e-commerce levy, the operator computed it on its own Indian consideration.
- Deposit on time: The levy had to be paid to the government by the due dates prescribed, with interest running on any delay.
- File the annual statement: The payer or operator filed the equalisation levy statement in Form 1 for the year, reconciling what was charged and paid.
Because the charge was flat and gross, it often bit harder than income tax would have on a thin-margin transaction.
A non-resident with a low net margin still paid the same 2% or 6% on turnover, with no deduction for costs. That bluntness was one of the recurring criticisms.
Worked examples: the levy before and after abolition
Numbers make the change concrete. Here are three scenarios that cover the common shapes.
A startup that used to withhold 6% on Google and Meta ads
Kettle Labs is a Bengaluru SaaS startup that spends ₹10,00,000 a year on ads with non-resident platforms.
- Before 1 April 2025: The 6% levy applied. Kettle Labs deducted ₹60,000 and deposited it, remitting ₹9,40,000 to the platform, and filed Form 1 for the year.
- On or after 1 April 2025: No levy applies. Kettle Labs pays the full billed amount to the platform and instead checks whether TDS under the Income-tax Act, read with the treaty, is due, and whether SEP or royalty or FTS characterisation applies.
For Kettle Labs, the visible change is that the ₹60,000 deduction disappears, replaced by a per-transaction income-tax review that its CA now runs on the ad spend.
An e-commerce operator under the old 2%
Northwind Retail is a foreign marketplace that earned ₹5,00,00,000 from Indian users in a pre-2024 year.
Under the 2% e-commerce levy, Northwind was liable directly for ₹10,00,000 on that consideration and paid it itself, with no deduction by its Indian customers. For transactions on or after 1 August 2024, that direct liability ended.
Northwind's Indian-market income is now examined under ordinary income-tax and SEP principles rather than a flat 2% on turnover, which usually means a fact-heavy analysis in place of a simple gross charge.
A company handling a pre-2024 pending assessment
Delta Media deducted the 6% levy on ad payments across 2022 and 2023 and now faces a query on those years in 2026.
Repeal does not help Delta here. The transactions are dated before the cut-off, so the old law still governs them.
Delta's team pulls out the Form 1 statements, challans and computations for those years, reconciles what was deducted against what was deposited, and responds on the old provisions.
The lesson is that abolition closed the door for new spend but left the file open for old spend until each assessment is settled.
What was the global context behind the levy?
The equalisation levy did not appear in isolation. It was India's response to a worldwide problem: highly digital businesses earning large revenues in a market while paying little tax there, because old rules keyed tax to physical presence.
Several countries introduced similar unilateral digital taxes in the same period. In parallel, a broad international effort worked on reallocating taxing rights over the largest digital groups and setting a shared approach.
As that multilateral work advanced, unilateral levies were meant to give way to it.
India's decision to withdraw the levy fits that arc. Rather than run a disputed standalone charge alongside the emerging framework and the existing income-tax provisions, the government retired the levy and leaned on Significant Economic Presence and treaty-based analysis instead.
For multinational groups, that shift makes the older debates about transfer pricing problems and challenges more central again, since intercompany digital charges now sit squarely inside mainstream tax review.
Equalisation levy vs SEP (significant economic presence)
People often ask how the equalisation levy compares with Significant Economic Presence, because SEP is now doing part of the job the levy used to do. They are different tools with different mechanics.
The levy was a flat, gross charge that sat outside the Income-tax Act and ignored treaties.
SEP works the other way: it is an income-tax concept that can create a taxable nexus in India for a non-resident based on revenue thresholds or user base, and it is then read together with the relevant tax treaty.
Where the levy asked no questions beyond the rate, SEP asks many, from thresholds to attribution to treaty override.
The practical effect for an Indian payer is that certainty has been traded for judgement. The levy told you the number.
SEP and treaty analysis make you work it out, which is exactly why per-vendor review now matters more than it did.
Are past equalisation levy assessments still active?
Yes. Repeal for new transactions does not erase old liabilities. Transactions dated before the respective cut-offs remain subject to the levy, and the tax authority can still assess, reopen or litigate those years.
A few residual threads continue in 2026:
- Pending assessments and appeals: Cases for pre-transition years proceed under the old provisions.
- Refunds and disputes: Claims and appeals tied to earlier payments run their course.
- Section 10(50) sunset: The income-tax exemption that prevented double taxation of levy-covered income sunsets from AY 2026-27, so the interaction with income tax must be checked for the transition years.
Keep the records, challans and computations for the levy years until those matters close, as a transfer pricing audit or an income-tax review can reach back into them.
How this affects Indian exporters, and where Xflow fits
If you export services from India, the levy was never a charge on your inward receipts. It taxed outbound payments to non-residents, not the export income you receive from overseas clients.
Your export revenue continues to be a zero rated supply under gst under GST.
Xflow is a cross-border receiving platform, not a tax or CA service, so it does not handle your levy or withholding filings.
Where it helps is the money coming in: it issues automatic eFIRA on inward payments, settles at the mid-market rate through a ring-fenced vBAN, and keeps clean records your accountant can reconcile.
For groups with related-party flows, that clean audit trail also supports the transfer pricing report your compliance team prepares.
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What should businesses do now?
The repeal simplifies one thing and complicates another. It removes a flat charge, but it replaces certainty with judgement, so a short checklist helps.
- Split by date: Treat transactions before and after the cut-offs separately. Pre-cut-off payments still carry levy obligations; later ones do not.
- Re-map recurring vendors: For ongoing spend on ads, cloud and marketplaces, decide the correct withholding, and whether royalty, fees for technical services or SEP applies, with the treaty in hand.
- Refresh documentation: Keep tax residency certificates, no-PE declarations and Form 10F where relied on, so a lower treaty rate holds up on review.
- Close the old years: Retain challans, Form 1 statements and computations until pending assessments and appeals for the levy years are settled.
For groups with intercompany digital charges, the analysis usually loops back to pricing, so refreshing your transfer pricing best practices alongside the withholding review avoids surprises later.
Equalisation levy vs withholding tax
Now that the levy is gone, the concept people most often confuse it with is ordinary withholding tax. They are not the same, as the table shows.
| Feature | Equalisation levy (repealed) | Withholding tax (TDS) |
|---|---|---|
| Legal basis | Standalone, outside the Income-tax Act | Inside the Income-tax Act |
| Treaty relief | Not available | Available, subject to conditions |
| Rate | Fixed 6% (ads) or 2% (e-commerce) | Fact-specific, treaty-modified |
| Status in 2026 | Withdrawn for new transactions | Live and applicable |
| Analysis needed | Flat charge, little judgement | SEP, royalty or FTS, and treaty review |
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The bottom line
The equalisation levy is history for new transactions: the 2% went on 1 August 2024 and the 6% on 1 April 2025, replaced by ordinary withholding, SEP and treaty analysis rather than a fresh flat charge.
Older years still live on through pending assessments and the Section 10(50) sunset, so keep the records and confirm your position with a CA.
Frequently asked questions
Yes. The 2% e-commerce levy was withdrawn for transactions on or after 1 August 2024, and the 6% advertising levy was withdrawn on or after 1 April 2025 by the Finance Act 2025. It no longer applies to new transactions.
Not for new transactions. Both arms are withdrawn. Older transactions dated before the cut-offs remain governed by the old law, and the Section 10(50) exemption sunsets in AY 2026-27.
The 6% advertising levy was deducted and deposited by the Indian payer buying online ads from a non-resident. The 2% e-commerce levy was paid directly by the non-resident e-commerce operator on its Indian-market revenue.
No new tax replaced it. Payments to non-resident digital firms are now examined under ordinary withholding tax, Significant Economic Presence, and royalty or fees-for-technical-services rules read with the relevant tax treaty.
No. From 1 April 2025 the 6% levy on online advertising no longer applies to new payments. Ad spend with non-resident platforms is now examined under ordinary income-tax and treaty rules instead.
Yes. Transactions dated before the withdrawal cut-offs remain governed by the old law, so pending assessments, appeals and refunds for those years continue, and records should be retained until they close.
No. It taxed outbound payments to non-residents, not the export receipts you collect from overseas clients. Your service exports remain a zero-rated supply under GST.
