Equalisation levy: what's in, what's out after the 2026 amendments

Equalisation levy began in 2016 as a 6% withholding on online advertisement payments by Indian businesses to non-resident service providers. The 2020 expansion added a 2% levy on the gross consideration of e-commerce supplies by non-resident e-commerce operators to Indian residents.

The 2024 Finance Act withdrew the 2% levy with effect from 1 August 2024, in alignment with the OECD/G20 Inclusive Framework's progress on Pillar One. The 6% levy on advertisement payments was retained.

Two years later, the application of what remains is still being misread by Indian payers. Here is what stands.

The 6% levy that remains

Section 165 of the Finance Act 2016 (as amended) imposes an equalisation levy at 6% on the consideration for specified services received or receivable by a non-resident from:

a person resident in India and carrying on business or profession; or

a non-resident having a PE in India.

Specified services means online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement. The list also includes any other service notified by the Central Government.

The Indian payer deducts the 6% at source from the payment and deposits it to the credit of the Central Government within 7 days of the end of the month. Failure: interest at 1% per month under Section 170 and penalty equal to the amount of levy not deducted.

The aggregate annual exemption: ₹1 lakh of consideration in a financial year per non-resident. Below this, no levy. Above this, the entire amount including the first ₹1 lakh is liable.

Who actually pays it in practice

In our advisory work, the standard fact patterns are:

Indian SaaS company paying Google Ads, Meta Ads, LinkedIn Ads — clearly within scope, levy applies.

Indian D2C brand running Amazon Sponsored Ads where Amazon's billing entity is non-resident — within scope.

Indian agency running campaigns on behalf of Indian clients where the agency is the contractual payer to Google/Meta — the agency pays the levy; client reimbursement happens separately under the contractual arrangement.

Indian companies paying Indian subsidiaries of Google/Meta — outside scope (Google India Pvt Ltd and Meta India are Indian residents; equalisation levy does not apply to payments to Indian residents).

The last pattern matters. Google reorganised its India billing in 2022-23 so that Indian advertisers contracting with Google's Indian subsidiary do not need to apply the equalisation levy. Meta has a similar arrangement. The savings: 6% on the entire ad spend.

Check who your invoice is from. If it is Google Asia Pacific Pte Ltd (Singapore), apply the 6% levy. If it is Google India Pvt Ltd, no levy. We have seen Indian companies continuing to deduct the levy on Google India invoices long after the billing flip — over-paying by 6%.

The 2% e-commerce levy: gone, with a hangover

The 2% levy on e-commerce supplies was introduced in 2020. It applied to non-resident e-commerce operators on online sale of goods or provision of services to Indian residents, with thresholds and carve-outs.

The 2024 Finance Act withdrew it effective 1 August 2024. The withdrawal aligns with India's commitment under the OECD Inclusive Framework's transition arrangement around Pillar One (the global allocation of taxing rights to market jurisdictions on residual profit of the largest MNEs).

The hangover: assessments and refunds for FY 2020-21 through FY 2024-25 (up to 1 August 2024) are still being processed. Where the non-resident e-commerce operator paid the levy and seeks a refund on the basis that the receipts were never within scope, the matters continue.

If you are an Indian buyer who absorbed the 2% gross-up from an Amazon-out-of-Singapore or similar non-resident e-commerce operator between 2020 and 2024, the levy was theirs to pay, not yours to absorb. Whether you can recover from the operator is a contract question. The levy itself has stopped accruing from 1 August 2024.

The Pillar Two intersection

Pillar Two of the OECD Inclusive Framework — the global minimum tax of 15% on large MNE groups — has been implemented by India through the Finance Act 2024 with the Qualified Domestic Minimum Top-up Tax provisions starting AY 2025-26.

The interaction with equalisation levy is indirect but worth flagging. A non-resident in-scope MNE paying equalisation levy in India: the levy may be a covered tax for Pillar Two computation, increasing the effective tax rate in India and reducing the top-up tax exposure. The non-resident's home jurisdiction may also be allowing a credit for the equalisation levy under its own foreign tax credit rules.

For Indian payers, the Pillar Two question is rarely a direct concern. For Indian-headquartered groups (Reliance, Tata, Infosys), the home-side application of Pillar Two matters more.

Practical compliance in 2026

Three things every Indian payer to non-resident digital service providers should institutionalise.

First, vendor-by-vendor categorisation. For each non-resident vendor, document: contracting entity, nature of service, applicable levy rate, exemption applicability. Refresh annually.

Second, monthly deposit discipline. Equalisation levy deducted in any month must be deposited by the 7th of the next month. The portal accepts levy challans (ITNS 285); the return is in Form 1 (annual, by 30 June following the FY).

Third, refund tracking for the 2% legacy. If you ever absorbed the 2% gross-up on cross-border e-commerce payments and have records of the relevant invoices, run a contractual recovery process with the operator. Most will entertain a back-billing adjustment, particularly where the levy has now been formally withdrawn.

Where the levy may go next

The OECD's Pillar One Amount A — which would have re-allocated residual profit of the largest MNEs to market jurisdictions — has not yet been ratified by the requisite number of signatories. India had agreed, as part of its Pillar One support, to withdraw unilateral digital services taxes including the 2% e-commerce levy. The withdrawal of the 2% in 2024 was India's signal of commitment.

If Pillar One fails to enter into force, the question of re-introducing or expanding equalisation levy may return. The 6% advertisement levy may also expand to other digital service categories. We have seen draft legislative thinking — not policy — around extending the levy to cloud infrastructure payments. Nothing has been enacted; the watch is on.

What we do at engagement

For Indian payers above ₹1 crore annual cross-border digital spend, we run a quarterly vendor file review: contracting entity, levy applicability, invoice classification, deposit reconciliation. For non-resident operators historically caught by the 2% levy, we run the residual refund analysis. The work is procedural; the value is in not paying levy on payments that have since flipped to Indian-resident invoicing, and in not missing levy on payments that remain in scope.

Read the invoice before you accept the gross-up. Six percent of an annual ad spend is meaningful money.