India has decided to remove the 6% equalisation levy, commonly known as the “Google tax,” on online advertising services provided by foreign tech giants like Google and Meta. This tax will be eliminated starting April 1, 2025, as part of amendments to the Finance Bill, according to Reuters.

The move is aimed at easing trade tensions with the US, which had previously opposed the levy and threatened to impose tariffs of up to 25% on Indian exports such as shrimp, basmati rice, and jewellery. By removing the tax, India seeks to strengthen its trade relations with the US while benefiting tech companies, advertisers, and the country’s digital economy.

Understanding the Google Tax

In 2016, India implemented the Equalisation Levy, imposing a tax on payments made by Indian businesses to overseas companies for digital advertising services. The tax aimed to ensure that global tech firms, which earn substantial revenue from Indian users without a physical presence in the country, contribute to India’s tax system.

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

Following an agreement with the US, the 2% tax was withdrawn last year. Now, the government is set to remove the original 6% levy, further aligning India’s tax policies with global trade standards.

Understanding the Decision to Eliminate the Tax

India's decision to eliminate the equalisation levy is part of its strategy to ease trade tensions with the US. Previously, the US had threatened to impose tariffs of up to 25% on Indian exports, including shrimp, basmati rice, and jewellery, in response to the tax.

Experts believe that scrapping the levy will strengthen India-US trade relations and help prevent future disputes. Other nations, such as 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 remained a concern for the US administration," said Sudhir Kapadia, senior advisor at EY, in a statement to Reuters.

What Are the Benefits for Tech Giants?

The removal of the Google tax will provide several advantages for global tech companies. Indian businesses will benefit from lower advertising costs on platforms like Google and Meta, leading to increased digital ad spending. This, in turn, is expected to attract more advertisers, driving higher revenues for these platforms. Additionally, tech giants will no longer need to factor the tax into their pricing, improving their profit margins.

The decision is also aimed at easing trade tensions with the US, preventing potential retaliatory tariffs and fostering a stable business environment for multinational companies. Furthermore, the removal of the tax is expected to attract greater foreign investment in India’s digital sector. Reduced advertising costs may encourage higher spending on online platforms, benefiting businesses dependent on digital marketing. However, the government intends to eliminate certain tax exemptions for foreign tech firms, meaning they may still be subject to taxation under other regulations.

Updated Offshore Fund Regulations

The Finance Bill introduces revisions to offshore fund management regulations. One significant amendment eliminates restrictions on Indian residents participating in offshore funds, simplifying the process for these funds to relocate to India. Experts believe these changes are designed to streamline tax laws and bolster business support.