Equalisation Levy explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The equalisation levy is a standalone tax under Chapter VIII of the Finance Act, 2016 on specified digital payments to non-residents. A 6% levy applies to online advertising services where annual payment exceeds ₹1,00,000; the 2% e-commerce levy was withdrawn from 1 August 2024.
Overview
The equalisation levy was introduced to tax the digital economy where a non-resident earns from Indian users or advertisers without a taxable presence in India. Critically, it is not part of the Income-tax Act — it lives in Chapter VIII of the Finance Act, 2016. That placement matters: DTAA relief and Income-tax Act machinery generally do not apply to it.
The Two Levies
There have been two distinct equalisation levies:
- 6% on online advertising (in force). Charged on consideration for online advertisement, provision of digital advertising space, or any facility/service for online advertising, paid by an Indian resident (carrying on business/profession) or a non-resident with a PE in India, to a non-resident service provider.
- 2% on e-commerce supply/services (withdrawn). Introduced from 1 April 2020 on the amount received by a non-resident e-commerce operator for supply of goods/services to Indian residents or specified persons. This was withdrawn with effect from 1 August 2024.
Scope and Threshold
The 6% advertising levy bites only where the aggregate consideration paid to a single non-resident provider exceeds ₹1,00,000 in a financial year. Payments purely for the resident’s own personal use (not business) are outside the charge. The service must be an "online" advertising service — hoardings and print are unaffected.
Who Deposits It
For the 6% levy, the payer (Indian resident or non-resident-with-PE) deducts the levy from the payment to the non-resident and deposits it. If the payer fails to deduct, they must still deposit the levy and face interest and penalty. For the erstwhile 2% levy, the non-resident e-commerce operator was itself liable to pay.
Rate and Interaction with Income Tax
| Levy | Rate | Status | Income-tax exemption |
|---|---|---|---|
| Online advertising services | 6% | In force | Section 10(50) exempts the receipt from income tax |
| E-commerce supply/services | 2% | Withdrawn from 1 Aug 2024 | Was exempt under section 10(50) |
Section 10(50) prevents double taxation: income already charged to equalisation levy is not taxed again as income under the Income-tax Act, 2025.
Worked Example
An Indian company pays a foreign platform ₹5,00,000 during the year for online advertising. Because the aggregate exceeds ₹1,00,000, the levy applies. The company deducts 6% = ₹30,000, pays ₹4,70,000 to the platform, and deposits ₹30,000 to the government. The ₹30,000 is not further taxed in the platform’s hands in India.
Compliance Timeline
- Monthly deposit: the levy deducted in a month is paid by the 7th of the following month.
- Annual statement: Form 1 is filed electronically, generally by 30 June after the financial year end.
- Interest: 1% per month for delayed deposit; penalties apply for non-deduction and non-filing.
Common Pitfalls
- Assuming DTAA relief reduces the levy — it does not, because the levy is outside the treaty and the Income-tax Act.
- Missing the ₹1,00,000 aggregation across multiple invoices to the same provider.
- Treating post-1 August 2024 e-commerce payments as still leviable — the 2% levy has ended.