Equalisation Levy After August 2024: Sunset, Status Quo or Reshaping?
India’s Equalisation Levy (EL), introduced years before a global consensus emerged on taxing the digital economy, has moved from being an innovative unilateral measure to a central piece in a complex international tax negotiation. Popularly tagged as the “Google Tax”, the levy was designed to tax non-resident digital and e-commerce players extracting value from Indian users without a conventional permanent establishment.
As the OECD/G20’s Two-Pillar Solution—especially Pillar One—edges forward but remains delayed, the policy debate in India after August 2024 revolves around a critical question: Does the EL continue, phase out, or get reshaped? This article examines the likely paths for the Equalisation Levy, the interaction with India’s global commitments, and the practical implications for non-resident digital businesses.
Framework of the Equalisation Levy in India
Dual-Layer Design of the Levy
India’s EL mechanism currently operates through a two-part framework under the Finance Act:
EL 1.0 – Online Advertising (
Section 165, Finance Act, 2016)
A 6% levy is imposed on gross consideration received by a non-resident from:- Specified online advertisement services, and
- Associated digital and related services
where such services are provided to:
- Indian residents, or
- Non-residents having a permanent establishment in India, in connection with that permanent establishment.
EL 2.0 – E-Commerce Supply or Services (
Section 165A, Finance Act, 2020)
A 2% levy applies on gross consideration received by a non-resident e-commerce operator from:- Online sale of goods
- Online provision of services
- Facilitation of such sale of goods or provision of services online
- Online sale of data collected from Indian users
- Provision of goods or services using data collected from Indian users
The scope of EL 2.0 is intentionally broad, capturing a wide universe of digital transactions where the market is India, even if the non-resident has no physical footprint in the country.
Revenue Significance and Trade Friction
- The EL has grown into a meaningful revenue source for the Indian exchequer, especially in the context of expanding digital commerce.
- Simultaneously, it has been a focal point of trade tensions, notably drawing scrutiny from the United States Trade Representative (USTR) through a Section 301 investigation, which categorised such measures as potentially discriminatory digital service taxes.
In short, what began as a domestic measure to ensure digital fairness is now locked into multilateral tax diplomacy.
The OECD/G20 Two-Pillar Solution and Its Link to EL
Overview of the Two-Pillar Solution
India, as part of the OECD/G20 Inclusive Framework on BEPS, has endorsed in principle the Two-Pillar Solution intended to address tax challenges from digitalisation of the global economy.
Pillar One – Reallocation of Profits
- Allocates a defined share of profits of the largest and most profitable MNEs—estimated at around $200 billion of global profit—to market jurisdictions, irrespective of physical presence.
- This is the key pillar intersecting directly with the policy world of the Equalisation Levy, as it seeks to replace unilateral DSTs with a unified global approach.
Pillar Two – Global Minimum Tax
- Introduces a global minimum effective corporate tax rate of 15%.
- Aims to discourage harmful tax competition and profit shifting by ensuring MNEs pay a minimum level of tax regardless of where they operate.
Political Undertaking on Digital Services Taxes
The most critical political undertaking attached to Pillar One is clear:
Upon implementation of the new taxing right under Pillar One, all existing Digital Services Taxes (DSTs) and relevant similar measures will be removed and will not be introduced in the future.
Initially, global stakeholders worked with an implementation window around 2023–24, with an assumption that during this transition period, countries could retain their existing DST-type measures, including the EL.