Equalisation Levy in India: Abolished, and What You Pay Now

The equalisation levy was India's tax on payments made to non-resident digital companies, popularly called the "Google tax". As of April 2025 it no longer applies. The 2% levy on e-commerce supplies was withdrawn from 1 August 2024, and the 6% levy on online advertising was abolished from 1 April 2025. So if you run an IT or ITeS business that buys foreign digital ads, cloud or software, there is no equalisation levy left to deduct on those payments. Just as importantly, the levy never touched the money you earn from overseas clients. It only ever applied to what Indian businesses paid out to foreign providers. This guide covers what the levy was, how it worked, why it was scrapped, and what you actually owe today on cross-border digital spend.

The essentials, in brief:

• 6% levy on online advertising paid to foreign platforms (Google, Meta, LinkedIn): abolished from 1 April 2025.
• 2% levy on e-commerce supply by non-resident operators: withdrawn from 1 August 2024.
• It was a tax on outbound payments by Indian businesses, never on your export income.
• What remains on foreign digital spend: GST under reverse charge and, in some cases, income-tax withholding. Confirm your position with a chartered accountant.

The equalisation levy was a direct tax India introduced in the Finance Act 2016 to capture income that foreign digital companies earned from Indian customers without having a physical office here. Because a company like Google or Meta could sell advertising into India while booking the revenue offshore, the levy was designed to tax that value at the point of payment instead. This is why the press nicknamed it the "Google tax".

It started narrow. From 1 June 2016 it covered only online advertising and related digital ad services. In the Finance Act 2020 the government widened it sharply, adding a 2% levy on a broad set of e-commerce supplies made by non-resident operators. For a few years, both versions ran in parallel and became a recurring headache for anyone reconciling cross-border tax compliance across their vendor payments.

No. Both versions have been removed:

• The 2% e-commerce equalisation levy was withdrawn for consideration received on or after 1 August 2024.
• The 6% online-advertising equalisation levy was abolished from 1 April 2025, through an amendment in the Finance Act 2025.

The government's stated reasons were to reduce friction in international trade talks and to move in step with the OECD global tax framework, which discourages unilateral digital taxes. For an Indian business, the practical effect is simple: payments you make to foreign ad platforms and digital vendors no longer attract any equalisation levy.

Here is how the two levies compared while they were in force:

Regulatory position as of August 2026. Re-confirm against the Income Tax Department before acting on any prior-year matter.

This is where most of the confusion sits, so it is worth being precise.

For the 6% advertising levy, the payer was the Indian resident business (or a non-resident with a permanent establishment in India) that bought the ads. If your annual spend with a single foreign platform crossed ₹1 lakh, you were required to withhold 6%, deposit it with the government, and report it. The foreign platform received the payment net of the levy.

For the 2% e-commerce levy, the liability sat on the non-resident operator itself, not on the Indian customer.

What the levy never did was tax your earnings. If you are an ITeS exporter or a freelancer receiving money from clients abroad, the equalisation levy was never a charge on that inbound income. Your export receipts are governed by income tax and, where applicable, GST on international transactions, not by this levy.

A note for freelancers: the equalisation levy could only ever have reached you as a payer of foreign digital ads above the ₹1 lakh threshold, and even that is now gone. It had no bearing on the money you invoice to overseas clients. If you are sorting out your own obligations, that sits under freelancer income tax rather than anything to do with this levy.

Although the tax is gone, the mechanics still matter for any open assessment from earlier years, and they show why the removal is a genuine relief.

Take an ITeS company that spent ₹5,00,000 a year on foreign-billed ads. Under the 6% levy it had to set aside ₹30,000, deposit it with the government, and file the paperwork. That obligation ran on a fixed calendar:

• Deposit: the levy deducted in a month was due by the 7th of the following month.
• Annual statement (Form 1): filed on or before 30 June after the financial year.
• Interest: 1% per month on any delayed deposit.
• Penalty: an amount equal to the levy for failure to deduct, plus ₹100 per day for a late statement.

There is no single tax that stepped into the equalisation levy's place. Instead, foreign digital income falls back to the general rules, and a few of those still land on you when you buy from abroad.

• GST under reverse charge. When you import a service such as foreign SaaS, cloud or online advertising, and the vendor does not charge Indian GST, you self-assess 18% IGST under the reverse-charge mechanism. If you are GST-registered you can usually claim it back as input tax credit. Adding your GSTIN in your Google or Meta account tells the platform to bill you as a business and handle the tax correctly.
• Income-tax withholding. Where a foreign payment is taxable in India, tax may need to be withheld under the income-tax rules. Most straightforward ad payments to platforms with no Indian presence are not taxable here, subject to the relevant tax treaty. This is fact-specific, so it belongs in the wider question of TDS on foreign payments and a CA's confirmation.
• Significant Economic Presence (SEP). This is the framework that now decides when a foreign digital business is taxable in India, based on revenue above ₹2 crore or a large Indian user base. It taxes the foreign provider on a net-income basis, not the Indian customer.

One transitional point to watch: the income-tax exemption under Section 10(50), which stopped equalisation-levy income being taxed twice, is being withdrawn in step with the levy's removal. Post-abolition digital receipts fall to be considered under the normal income-tax provisions. The exact assessment year should be confirmed with your advisor.

For an IT or ITeS business, losing the equalisation levy takes one recurring line off the paying side of your cross-border books. No more 6% to withhold and deposit every time you scale up ad spend, and one fewer statement to file.

The heavier compliance load has always sat on the receiving side, where your export money comes in. That is where documentation like FIRA, purpose codes and GST treatment of export services needs to be right, month after month. Getting paid through a purpose-built rail rather than a plain bank wire is what keeps that side clean: Xflow issues auto eFIRA on settlement, applies the correct purpose codes, and settles to your account at T+1, so the paperwork behind your receiving accounts is handled as the money lands. Xflow holds final RBI Payment Aggregator – Cross Border (PA-CB) authorisation for both exports and imports (as of February 2026), which means the same platform now covers outbound vendor payments too, including the foreign digital services this levy used to tax.

If you want to see how this maps to a services-export business specifically, Xflow's payments for ITeS industry page walks through the receiving-side compliance in detail. And when you do need to pay a foreign supplier, the mechanics of how to send money abroad from India are worth understanding before you book the transfer.

The equalisation levy is now history for current transactions: 2% gone since August 2024, 6% since April 2025. For IT and ITeS exporters and freelancers, that removes a cost on the paying side and clears up a long-standing myth on the earning side, since it never applied to your export income in the first place. What is left on foreign digital spend is mainly GST under reverse charge and, occasionally, income-tax withholding, both of which a chartered accountant can confirm for your situation. With the outbound levy off the table, the compliance that still repays attention is on the money coming in.