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India Entry Services helps foreign companies establish operations in India. The service assists with business structuring, necessary approvals, and compliance requirements for foreign businesses seeking to enter the Indian market.

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Our Corporate Secretarial practice handles statutory compliance requirements for companies operating in India, including corporate legal documentation, board meeting management, and regulatory filings.

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Corporate Legit’s restructuring services include mergers and acquisitions, demergers, and corporate restructuring activities in accordance with regulatory requirements.

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We provide trademark search and registration services in IP databases, along with other intellectual property protection services, to safeguard clients’ IP rights in India.

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Our taxation practice provides advice under Direct & Indirect Taxation, including income tax planning, GST compliance, double taxation avoidance advisory, and international taxation matters, to ensure clients remain compliant with Indian tax laws

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Equalisation Levy in India: History, Abolition & What Comes Next

August 21, 2026
Sachin Aggrawal
International taxation
0

Table of Content

The equalization levy in India is gone. The 2% e-commerce levy was abolished from August 1, 2024. The 6% advertising levy was abolished from April 1, 2025. The Finance Act 2025 completed the full rollback. After nine years, India’s unilateral digital tax experiment is over. That sentence needs a qualifier immediately. The abolition is prospective. A foreign e-commerce operator that owed 2% EL on Indian transactions upto 31 July 2024 still owes it. A foreign company that received online advertising revenue from Indian businesses between June 2016 and March 2025 without complying has an exposure that the abolition does not erase. The levy is gone for future transactions. The history is not erased.

What Was the Equalisation Levy in India and How Did It Work?

Equalisation levy in India initially applied a 6% levy on online advertising services from June 1, 2016, before expanding to a 2% levy on e-commerce supplies and services from April 1, 2020. Both provisions were enacted outside the Income Tax Act, 1961, so DTAA relief could not be claimed. The structure was deliberate. Non-resident digital companies were not creating taxable presence in India under conventional PE rules. By placing the levy in a standalone chapter of the Finance Act rather than in the Income Tax Act, India removed the taxpayer’s ability to invoke a DTAA to exempt the income. EL 1.0 worked like TDS. The Indian business paying for digital advertising deducted 6% and deposited it with the government. The foreign platform received the net amount. The Indian payer was responsible for deduction and deposit. EL 2.0 worked differently. The non-resident e-commerce operator was directly responsible for self-assessing and paying 2% on Indian transaction consideration. This required obtaining a PAN in India, filing quarterly returns, maintaining records of Indian-origin transactions, and making quarterly payments. For companies with no other India connection, this created an entirely new compliance burden.

What Was the Equalisation Levy Rate and Which Transactions Were Covered?

The equalisation levy rate was 6% for EL 1.0 on payments for online advertising services, applicable where an Indian resident or non-resident with PE in India paid a non-resident digital advertising provider. The equalisation levy rate for EL 2.0 was 2% on gross consideration received by non-resident e-commerce operators from Indian transactions, subject to a Rs. 2 crore annual threshold. EL 2.0 covered three categories:

Online sale of goods owned by the non-resident operator
Online provision of services by the non-resident operator
Online facilitation of third-party sales of goods or services

The third category is what generated most of the international friction. A marketplace platform facilitating third-party sellers could be liable on the gross consideration collected for transactions facilitated through its platform, rather than only on its commission, depending on how payments were structured . The US Trade Representative’s 2021 report specifically described the e-commerce equalisation levy as discriminatory against US companies. That report was not wrong. The Rs. 2 crore threshold for EL 2.0 was the trigger. Below it, no Equalisation Levy liability, no annual statement, and no payment obligation . Above it, the full equalisation levy compliance framework applied from the first rupee.

Why Was the Equalisation Levy in India Abolished?

The Finance Act 2024 abolished EL 2.0 from August 1, 2024 because of concerns over ambiguity, compliance burden and overlap with emerging international digital tax reforms. The Finance Act 2025 followed by abolishing EL 1.0 from April 1, 2025 to align India with the OECD Pillar One framework and address international concerns over unilateral digital taxes. Together, the two levies generated around Rs. 3,300-3,500 crore annually. Finance Minister Nirmala Sitharaman was explicit when asked whether the EL 1.0 abolition was driven by US tariff pressure: “Withdrawal of the Equalisation Levy is not a reaction to President Trump’s tariff wars. The 2% Equalisation Levy was withdrawn after stakeholder discussions in July 2024, which was before Trump took office.” The timing, with the EL 1.0 abolition announced in early 2025 as US reciprocal tariff threats escalated, has led many observers to their own conclusions about the real driver. The OECD rationale is more straightforward. India is a participant in the OECD/G20 Inclusive Framework on Pillar One. Maintaining a unilateral digital levy while negotiating a multilateral solution creates inconsistency. The abolition removes that inconsistency from India’s side. Revenue collected was approximately Rs. 3,500 crore in FY2023-24 and Rs. 3,300 crore in FY2024-25. That is material. The Ministry of Finance concluded the compliance complexity, international friction, and OECD commitment misalignment were not worth it.

What Compliance Obligations for Prior Periods Survive the Abolition?

The abolition of equalisation levy in India is prospective. All compliance obligations, filing requirements, penalty exposure, and assessment proceedings for periods before August 1, 2024 (EL 2.0) and April 1, 2025 (EL 1.0) remain fully active. Foreign companies that did not comply cannot rely on the abolition to extinguish historical liabilities. EL 2.0 prior period checklist for non-resident e-commerce operators:

Did Indian transactions exceed Rs. 2 crore in any year between April 2020 and July 2024?
Was 2% EL self-assessed and paid quarterly for each applicable year?
Were quarterly Equalisation Levy payments made and the annual Equalisation Levy Statement (Form 1) filed ?
Was PAN obtained and maintained in India?

EL 1.0 prior period checklist for Indian payers of foreign digital advertising:

Was 6% deducted on all qualifying payments to non-resident digital advertising providers between June 2016 and March 2025?
Was the deducted amount deposited with the government within prescribed timelines?
Were annual EL statements filed on Form 1 by June 30 each year?

Equalisation levy compliance defaults for prior periods attract interest at 1% per month on unpaid levy, penalties at the rate of the levy amount for failure to deduct or deposit, and prosecution exposure for wilful non-compliance. The abolition has not created an amnesty.

What Does the Post-Levy Landscape Look Like for Foreign Digital Businesses?

Post-abolition, digital tax in India foreign companies face is determined under the Income Tax Act and applicable DTAAs. The Significant Economic Presence provision under Section 9 of the Income Tax Act, introduced in 2018 and operationalised in 2021, was not abolished with the levy. Foreign digital companies with Indian transactions above Rs. 2 crore annually or systematic interaction with 300,000 or more Indian users have an SEP and a taxable business connection in India. This is the provision most foreign digital businesses are not tracking carefully enough after the abolition. When EL was in force, Section 10(50) of the Income Tax Act exempted income subject to EL from income tax. That prevented double taxation between the levy and the Income Tax Act. With EL abolished, Section 10(50) is largely irrelevant. SEP operates without that buffer. In practice, SEP has not been aggressively enforced because DTAA provisions override the domestic SEP rule for treaty-country residents. A US company with significant Indian user transactions can argue the India-USA DTAA’s PE definition governs and for residents of treaty countries, the domestic SEP rule cannot override the Permanent Establishment threshold in the applicable DTAA. Unless a PE exists under the treaty, India generally cannot tax business profits merely because the domestic SEP threshold is met . That argument only works where an applicable DTAA exists and the company qualifies for treaty benefits. For foreign digital companies from non-treaty countries, the SEP exposure post-abolition requires specific analysis. The conversation has shifted from equalisation levy applicability to SEP risk, and that shift has not been fully absorbed into most companies’ India tax planning.

Conclusion

Equalisation levy India was introduced in 2016 to tax digital economy income from non-resident companies that traditional PE rules could not reach. The 6% advertising levy and the 2% e-commerce levy together collected Rs. 3,300 to 3,500 crore at their peak. Both are now gone. The abolition does not clean the historical slate. Prior period compliance exposure survives. The SEP provision remains. For large digital multinationals, OECD Pillar One will eventually create a multilateral market-jurisdiction tax mechanism, though the timeline remains uncertain. Corporate Legit Consulting LLP advises foreign digital businesses on equalisation levy India prior period compliance, SEP exposure assessment, DTAA analysis for post-EL digital income, income tax return obligations for non-resident digital companies, and transfer pricing for Indian subsidiaries of foreign digital platforms. Reach out if your company has unresolved EL compliance for historical periods.

Frequently Asked Questions

1. Is the equalisation levy still applicable in India?

No. The equalisation levy India framework has been fully abolished: the 2% e-commerce levy from August 1, 2024 under the Finance Act 2024, and the 6% online advertising levy from April 1, 2025 under the Finance Act 2025. For transactions after these dates, no equalisation levy applies. Compliance obligations for prior periods remain fully in force.

2. What was the equalisation levy rate in India?

EL 1.0 was 6% on payments for online advertising services by Indian residents or non-residents with PE in India to non-resident digital advertising providers. EL 2.0 was 2% on gross consideration received by non-resident e-commerce operators from Indian transactions exceeding Rs. 2 crore annually. Both have been abolished for transactions after their respective abolition dates.

3. Do prior period equalisation levy obligations survive the abolition?

Yes. The abolition is prospective. Compliance obligations, penalties, and assessment proceedings for periods before August 1, 2024 (EL 2.0) and April 1, 2025 (EL 1.0) remain active. Non-compliance attracts interest at 1% per month and penalties equal to the levy amount. The abolition has not created an amnesty for historical defaults.

4. What replaced the equalisation levy for taxing foreign digital companies?

Post-abolition, foreign digital services tax India framework reverts to the Income Tax Act and applicable DTAAs. The SEP provision under Section 9 remains operative. Foreign digital companies with Indian transactions above Rs. 2 crore annually or systematic interaction with 300,000 or more Indian users have an SEP. For large digital multinationals, OECD Pillar One will eventually create a multilateral mechanism.

5. What is the SEP provision and how does it affect foreign digital companies post-abolition?

The Significant Economic Presence provision under Section 9 of the Income Tax Act deems a non-resident to have a taxable business connection in India if annual Indian transactions exceed Rs. 2 crore or systematic interaction with 300,000 or more Indian users occurs. It was not abolished with the equalisation levy. The Section 10(50) exemption that previously prevented double taxation between EL and income tax is now largely irrelevant. For non-treaty country digital businesses, SEP exposure requires specific post-abolition analysis.