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.