Legal Reference
Equalisation Levy Act, 2016 (Chapter VIII of Finance Act 2016) | 6% on online advertising by non-resident | 2% on e-commerce supply — abolished from 1 August 2024 (Budget 2024) | Still applicable for FY 2024-25 for pre-August period
1. What is Equalisation Levy?
Equalisation Levy is a tax on digital transactions — introduced to tax non-resident technology and e-commerce companies that derive revenue from India without having a physical presence (and therefore without being subject to Indian income tax). It was introduced in two phases: 6% on online advertising in 2016, and 2% on e-commerce supply by Finance Act 2020.
2. Two Types of Equalisation Levy
| Type | Rate | Applicable On | Status |
|---|
| EL 1.0 (2016) | 6% | Online advertising services provided by non-resident to Indian businesses | Still applicable |
| EL 2.0 (2020) | 2% | E-commerce supply by non-resident operators to Indian customers/buyers | Abolished from 1 August 2024 |
3. EL 1.0: 6% on Online Advertising
When an Indian business pays a non-resident company for online advertising services (Google Ads, Meta/Facebook Ads, LinkedIn Ads, Twitter/X Ads), the Indian payer must withhold and deposit 6% Equalisation Levy:
- Applicable on: online advertisement, provision of digital advertising space, any other facility/service for online advertisement
- Threshold: Aggregate payment to one non-resident company exceeds Rs 1,00,000 in a Tax Year
- Deposited by: Indian payer (deducted from payment to non-resident)
- Deposit deadline: 7th of following month (31 March payments by 7 April)
- Return: Form 1 filed annually by 30 June
4. EL 2.0: 2% E-commerce Levy — ABOLISHED
The 2% Equalisation Levy on e-commerce supply by non-resident operators (Amazon, Flipkart, etc. selling to Indian consumers, Uber, Airbnb, Zoom etc.) was abolished by Budget 2024, effective 1 August 2024. For Tax Year 2024-25, it applied from April to July 2024. From Tax Year 2025-26 onwards, no EL 2.0 is applicable.
5. Practical Example: Google Ads EL
Illustrative only. TechStart Pvt Ltd spends Rs 5 lakh on Google Ads in Tax Year 2026-27. Google is a non-resident company providing online advertising in India. EL applicable: Rs 5,00,000 × 6% = Rs 30,000. TechStart pays Google only Rs 4,70,000 and deposits Rs 30,000 as EL to the government by 7th of the following month. The Rs 30,000 EL is a deductible business expense for TechStart under Section 37 of ITA 2025.
6. Income Exempt from Income Tax
Income on which Equalisation Levy has been deducted is exempt from income tax in India for the non-resident (Section 10(50) equivalent in ITA 2025). This prevents double taxation — Google pays no income tax on Google Ads revenue from India because the Indian payer has already paid 6% EL. The EL effectively acts as a final tax on this income stream.
7. Why TaxClue
Many businesses that advertise on Google, Meta, or LinkedIn are unaware of the EL compliance obligation. Non-compliance attracts interest, penalties, and disallowance of the ad expense. TaxClue handles EL compliance including Form 1 filing. Contact us for Equalisation Levy advisory.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is Equalisation Levy?
Equalisation Levy is a tax on digital services provided by non-resident companies to Indian businesses — introduced to tax companies like Google, Meta, and LinkedIn that earn revenue from India without a physical presence (and therefore without being subject to Indian income tax). The 6% levy applies on online advertising services. The 2% levy on e-commerce supply was abolished from 1 August 2024.
Is Equalisation Levy on Google Ads still applicable?
Yes. The 6% Equalisation Levy on payments for online advertising to non-resident companies is still applicable and has not been abolished. If your company pays Google Ads, Meta/Facebook Ads, LinkedIn Ads, or any other non-resident digital advertising platform more than Rs 1,00,000 in a year, you must deduct 6% EL and deposit it monthly by the 7th. File Form 1 annually by 30 June.
Was the 2% Equalisation Levy abolished?
Yes. The 2% Equalisation Levy on e-commerce supply by non-resident operators (Amazon, Uber, Airbnb, Zoom etc.) was abolished from 1 August 2024 by Budget 2024. For Tax Year 2024-25, it applied only for the April-July 2024 period. From Tax Year 2025-26 onwards, there is no 2% e-commerce Equalisation Levy. The 6% levy on online advertising services remains.
How do I deposit Equalisation Levy?
The Indian payer deducts 6% Equalisation Levy from the payment to the non-resident advertiser and deposits it with the government using Challan No. 285 by the 7th of the following month (except March, which must be deposited by 7 April). An annual EL return (Form 1) must be filed by 30 June covering the entire Tax Year. Late deposit attracts simple interest at 1% per month.
Is Equalisation Levy deductible as a business expense?
Yes. The Equalisation Levy deposited by the Indian payer is a deductible business expense under Section 37 of ITA 2025 — it is treated as part of the cost of digital advertising. The non-resident recipient (Google, Meta etc.) does not need to pay income tax in India on the advertising revenue on which EL has been paid — it is exempt under ITA 2025 to prevent double taxation.
