India is set to remove the 6% equalisation levy, also known as the "Google tax," which applies to online advertising services provided by foreign tech companies like Google and Meta. According to Reuters, the tax will be removed from April 1, 2025, as part of changes to the Finance Bill.

The decision aims to strengthen trade ties with the US, which had opposed the tax and warned of possible retaliatory tariffs. Removing the charge is expected to benefit tech companies, advertisers, and India’s digital economy.

About Google tax

India introduced the Equalisation Levy in 2016 to tax payments made by Indian businesses to foreign companies for digital advertising services.The tax was designed to ensure that global tech companies, which generate significant revenue from Indian users but do not have a physical presence in the country, also contribute to India’s tax system.

Initially, a 6% levy was imposed on online advertising services. In 2020, the scope was expanded to include a 2% tax on e-commerce companies with annual revenue exceeding ₹2 crore in India.

However, after an agreement with the US, the 2% tax was withdrawn last year. Now, the government is preparing to remove the original 6% levy as well, further aligning India’s tax policies with global trade practices.

Reason behind removing tax

India’s decision to remove the tax is part of its efforts to ease trade tensions with the US. In the past, the US had warned of imposing tariffs of up to 25% on Indian goods like shrimp, basmati rice, and jewellery in response to the equalisation levy.

Experts say removing the tax will strengthen India-US ties and prevent future trade disputes. Other countries, including the UK, are also considering removing similar digital taxes to avoid conflicts with the US.

"Removing the equalisation levy is a smart move, as collections were low and it was a concern for the US administration," said Sudhir Kapadia, senior advisor at EY, in a statement to Reuters.

How will it benefit tech giants?

The removal of the Google tax will benefit global tech companies in several ways. Advertising on platforms like Google and Meta will become cheaper for Indian businesses, encouraging more digital ad spending. This will also attract more advertisers, boosting revenues for these platforms. Additionally, tech giants will no longer have to include the tax in their pricing, which will improve their profit margins. The move is also expected to ease trade tensions with the US, preventing any retaliatory tariffs and creating a stable business environment for multinational companies.

The removal of the Google tax is expected to attract more foreign investment in India's digital sector. Lower advertising costs may also boost spending on online platforms, benefiting businesses that rely on digital marketing. However, the government plans to remove certain tax exemptions for foreign tech companies, meaning they may still be taxed under other rules.

New rules for offshore funds

The Finance Bill also proposes changes to offshore fund management rules. A key amendment removes a restriction on Indian residents participating in offshore funds, making it easier for such funds to relocate to India. Experts say these changes aim to simplify tax laws and support businesses.

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