Equalisation Levy (EL) : Google Tax

The government has proposed the abolition of the Equalisation Levy (EL) on online advertisements as part of amendments to the Finance Bill, 2025.

About Google tax

• An equilasation levy is colloquially called ‘Google tax.’
• It is levied to ‘equalise’ the tax component of a resident e-commerce company as well as a non-resident e-commerce company. 

Background of Equalisation Levy

• Introduced in 2016, the 6% Equalisation Levy was charged on payments exceeding ₹1 lakh per year made to non-resident service providers for online advertisements.
• In 2021, India removed a 2% levy on e-commerce transactions, but the 6% EL on ads continued.

Reasons for Abolition

• India is taking a more accommodative stance to avoid trade retaliation.
• The US administration pressured India over tariffs and taxation on digital services.
  • The US had investigated digital taxes in multiple countries, including India, Austria, Italy, Spain, Turkey, and the UK, claiming they unfairly targeted American tech companies like Google, Meta, Apple, and Amazon.
• The move is seen as an effort to ease trade tensions, particularly with the United States over taxation on digital services.

Significance of the removal

• The removal of the 6% EL on ads aligns with India’s strategy of reducing trade frictions with the US.
• The Significant Economic Presence (SEP) rule remains in place to tax foreign companies with an online presence in India.
• Abolishing EL adds clarity for businesses and addresses concerns from partner nations like the US.

Other Key Amendments in the Finance Bill, 2025

• Changes in Taxation on Undisclosed Income: Sections 113, 132, and 158 have been amended to replace “Total Income” with “Total Undisclosed Income” in search and seizure assessments.
  • This clarification ensures that only undisclosed income (not legally declared income) will face harsh penalties.
• Reconciliation of Tax Return: Section 143(1) has been amended to introduce subclause (iia), which grants the tax department the authority to compare a taxpayer’s income tax return with the previous year’s return to flag discrepancies.