India Likely to Remove 6% Google Tax from April 2025, Boosting Tech Giants & Trade Ties

Ira Singh
Khabar Khabaron Ki,25 Mar’25

India is likely to scrap the 6% equalisation levy, commonly referred to as the “Google tax,” on digital advertising services provided by foreign tech companies such as Google and Meta. According to information, this tax will be eliminated from April 1, 2025, as part of amendments to the Finance Bill.

Strengthening India-US Trade Relations
The decision aligns with India’s broader efforts to improve trade relations with the United States. The equalisation levy had faced criticism from the US government, which viewed it as discriminatory against American firms and had even threatened retaliatory tariffs on Indian exports like shrimp, basmati rice, and jewelry. The removal of this tax is expected to ease tensions and foster stronger economic ties between the two nations.

Understanding the Equalisation Levy
Introduced in 2016, the equalisation levy was designed to ensure that global digital companies earning substantial revenue from Indian users contributed to the country’s tax framework, according to information. Initially, a 6% tax was levied on online advertising services purchased by Indian businesses from foreign tech companies. In 2020, the scope of the levy was expanded to include a 2% tax on all e-commerce transactions involving foreign firms with an annual business of over Rs 2 crore in India. While the 2% levy was withdrawn last year following a bilateral agreement between India and the US, the government now plans to eliminate the original 6% tax as well.

Why is the Tax Being Removed?
The primary reason behind scrapping the levy is to prevent trade disputes with the US. Experts suggest that this move will help maintain positive trade relations and prevent the imposition of retaliatory tariffs. Several other nations, including the UK, are also considering withdrawing similar digital taxes to avoid friction with the US.Sudhir Kapadia, a senior advisor at EY, reportedly noted that the revenue generated from the equalisation levy was relatively low, while it remained a significant concern for the US administration.

Benefits for Global Tech Firms
Eliminating the Google tax is expected to create multiple advantages for multinational digital companies operating in India:
• Lower Advertising Costs:With the removal of the 6% levy, advertising on platforms like Google and Meta will become more affordable for Indian businesses, encouraging higher digital ad spending.
• Increased Profitability : Tech giants will no longer need to absorb the tax burden, leading to better margins and improved earnings.
• More Advertisers on Digital Platforms: Reduced costs could attract more businesses to advertise online, driving higher revenues for digital platforms.
• Improved Trade Relations:The move could prevent potential US tariffs and create a stable business environment for global firms in India.

Impact on India’s Digital Economy
The withdrawal of the equalisation levy is expected to boost investment in India’s digital sector. By reducing advertising costs, businesses may increase spending on online marketing, fostering growth in the digital economy. However, while the levy is being phased out, the government is also considering removing certain tax exemptions available to foreign tech companies, meaning they may still be subject to taxation under different provisions.

Offshore Fund Management Rule Changes
Alongside the removal of the Google tax, the Finance Bill proposes changes to offshore fund management rules. Notably, the word “indirectly” is set to be removed from a provision that previously restricted Indian residents from investing in offshore funds. This amendment aims to simplify tax regulations and facilitate offshore funds relocating to India.Anil Talreja, partner at Deloitte India, reportedly stated that these amendments are intended to bring more clarity to tax laws and address long-standing challenges faced by businesses.

With these upcoming policy changes, India is taking steps to modernize its taxation framework, encourage digital investments, and strengthen its trade partnerships with key global economies noted financial experts.