What was the equalisation levy on digital payments, and is it still payable?
The equalisation levy was a separate charge under Chapter VIII of the Finance Act 2016, not part of the Income-tax Act: 6% on payments to non-residents for online advertisement and related services from 1 June 2016, and 2% on e-commerce supply or services by non-resident operators from 1 April 2020. The 2% levy ceased for supplies made or facilitated on or after 1 August 2024 and the department's own guidance states the equalisation levy provisions are not applicable with effect from 1 April 2025.
The equalisation levy sat outside the Income-tax Act. It was enacted in Chapter VIII of the Finance Act 2016, which meant it was not a tax on income, was not covered by India's double taxation avoidance agreements, and could not be relieved by foreign tax credit in the payer's home country — a design point that drove much of the international objection to it.
The first version, from 1 June 2016, charged 6% on consideration paid to a non-resident for specified services — principally online advertisement, provision of digital advertising space and related facilities. It was collected by withholding: a resident carrying on business or profession, or a non-resident with a permanent establishment in India, deducted the levy from the payment. It did not apply where the aggregate consideration payable to a non-resident for specified services in a previous year did not exceed Rs 1 lakh.
The Finance Act 2020 extended the levy to e-commerce. From 1 April 2020, a 2% levy applied to the amount of consideration received or receivable by a non-resident e-commerce operator from e-commerce supply or services made, provided or facilitated by it. Here the operator itself paid, not the customer. The threshold was Rs 2 crore of turnover or gross receipts from such supply or services in the previous year.
Because the same receipt could not sensibly be taxed twice, section 10(50) of the Income-tax Act exempted from income tax any income arising from a specified service or from e-commerce supply or services chargeable to equalisation levy.
Compliance was light on paper and awkward in practice — an annual statement in Form 1 by 30 June, with simple interest at one per cent of the levy for every month or part of a month of delay in payment, and penalties for failure to deduct or to file.
The unwinding came in two steps. The 2% e-commerce levy was withdrawn first: the department's own page records that it applied to e-commerce supply of goods or services made or facilitated on or after 1 April 2020 but before 1 August 2024. The withdrawal was widely reported as a response to the United States trade dispute over unilateral digital services taxes and to the OECD's Pillar One process.
The 6% advertising levy followed. Commentary records that it was abolished with effect from 1 April 2025 through the Finance Bill 2025, again against the background of US tariff pressure. The department's page states the position flatly: the provisions related to equalisation levy are not applicable with effect from 1 April 2025.
So for the current year nothing is payable. What remains is history that still matters — open assessments, refunds, and the question of how the underlying income is taxed now that the section 10(50) shield no longer applies to it, which pushes the analysis back into ordinary income-tax concepts such as royalty, fees for technical services and business connection.
Withdrawal does not close the file. Statements, interest and penalty proceedings for periods when the levy was live remain open, and payers who withheld 6% after the abolition date have over-collected. More importantly, once the levy and its section 10(50) exemption go, the same receipts fall to be examined under the Income-tax Act and the applicable treaty, which can produce a higher charge and a withholding obligation for the Indian payer.
My non-resident client pays equalisation levy on its Indian receipts, and the Assessing Officer has still refused a NIL section 197 certificate and directed ten per cent withholding. What is the answer?
My client paid two per cent equalisation levy on its Indian receipts and the department has still assessed the same receipts as fees for technical services and denied s.10(50). In what order should the argument be run?
My client paid equalisation levy on the same receipts the Assessing Officer is now taxing as income. Is there an exemption, and has the department any answer to it?
My client paid a foreign platform for online advertising. Was it required to withhold six per cent equalisation levy, what was the threshold below which it was not, and from when did that levy stop?
A foreign platform sold to Indian customers. Was it liable to the two per cent equalisation levy on its own receipts, what was the threshold, and when did that levy end?
The Assessing Officer says my non-resident client has a significant economic presence in India and therefore a business connection. From which year does that provision actually operate, what are the thresholds, and does it override the treaty?
A notice has come in demanding equalisation levy, and I cannot find the levy anywhere in the Income-tax Act. Which statute is it actually in, what machinery governs assessment and appeal, and has it not been abolished?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
