Equalisation Levy: Meaning, Rates, Status & 2024 Abolition
TL;DR - Summary
- What is the equalisation levy? - It was a separate Indian tax on specified digital transactions involving non-residents, introduced outside the income-tax framework.
- What rates applied and who was liable? - The 6% advertising levy was deducted by the business payer; the 2% e-commerce levy was paid by the non-resident operator, subject to thresholds and exclusions.
- Is the equalisation levy abolished? - Yes. The 2% levy ended from August 1, 2024, and the remaining 6% levy ended from April 1, 2025.
- What changed for Indian businesses? - Neither levy applies to new transactions after its end date, but past liabilities and separate income-tax, GST and export-compliance duties still need attention.
What Is the Equalisation Levy?
The equalisation levy was a separate Indian tax on specified digital transactions involving non-residents. Introduced under Chapter VIII of the Finance Act 2016, it sat outside the income-tax framework. Both components have now ended.
It aimed to tax certain foreign digital-business revenue from India that traditional income-tax rules tied to physical presence did not easily capture.
Before April 1, 2025, an Indian startup buying ₹5 lakh of qualifying non-resident advertising could have had to deduct ₹30,000. Business use and the provider’s Indian permanent establishment (PE) connection also mattered.
💡 QUICK INSIGHT
The 2% e-commerce levy ended from August 1, 2024 under the Finance (No. 2) Act 2024. The remaining 6% advertising levy ended from April 1, 2025 under the Finance Act 2025.
Why Was Equalisation Levy Introduced in India?
India introduced the levy to bring certain foreign digital-business revenue from Indian customers into its tax base, even without a physical presence here.
The 6% advertising levy began on June 1, 2016 under the Finance Act 2016. The Finance Act 2020 added the 2% e-commerce levy from April 1, 2020.
What Were the Equalisation Levy Rates in India?
The two rates were 6% on qualifying non-resident online-advertising consideration and 2% on qualifying consideration received or receivable by non-resident e-commerce operators.
- 6% rate: Applied to business or professional advertising bought by Indian residents or non-residents with an Indian PE. Annual consideration to one non-resident provider had to exceed ₹1 lakh. Services effectively connected with the provider’s Indian PE were excluded.
- 2% rate: Applied to qualifying non-resident e-commerce consideration. Operators with covered annual sales, turnover or gross receipts below ₹2 crore were excluded, as were PE-connected supplies and other excluded consideration.
| Feature | Equalisation Levy 1.0 (2016) | Equalisation Levy 2.0 (2020) |
|---|---|---|
| Rate | 6% | 2% |
| Applicable on | Online advertising services | E-commerce supply or services |
| Who pays / deducts | Resident business/professional payer or non-resident with Indian PE (deducts) | Non-resident e-commerce operator |
| Threshold | More than ₹1 lakh per provider per financial year | Covered annual sales, turnover or gross receipts of ₹2 crore or more |
| Current status | Ended from April 1, 2025 | Abolished w.e.f. August 1, 2024 |
Who Was Required to Pay Equalisation Levy?
The qualifying business payer deducted and deposited the 6% levy. The non-resident operator paid the 2% levy. Receiving foreign client fees did not itself make an Indian freelancer liable.
- 6% levy: The payer was an Indian resident carrying on business or a profession, or a non-resident with an Indian PE. Personal ad spending was excluded. Check the invoicing entity, not just the platform brand.
- 2% levy: The non-resident operator paid on qualifying consideration, subject to the ₹2 crore threshold and exclusions. Not all Indian revenue was automatically covered.
- Indian freelancers and service exporters: Foreign client receipts did not trigger the levy. Buying qualifying foreign advertising for their business could, however, have created a historical 6% deduction duty.
✅ PRO TIP
Keep old advertising invoices, deduction records, challans and filed statements. Abolition did not erase earlier liabilities.
How Was Equalisation Levy Calculated?
The 6% levy used gross qualifying advertising consideration. The 2% levy used covered e-commerce consideration, not profit. Each had its own threshold and exclusions.
- 6% levy: On ₹10 lakh of qualifying pre-abolition advertising consideration, the levy was ₹60,000 and the provider received ₹9.4 lakh after deduction. A net-payment contract could require grossing up.
- Threshold rule for 6%: At ₹1 lakh or less per provider per financial year, no levy applied. Above that, it applied to the full qualifying amount, not just the excess.
- 2% levy: On ₹3 crore of fully qualifying pre-abolition consideration, the levy was ₹6 lakh. Check the ₹2 crore threshold and statutory exclusions first.
How Was Equalisation Levy Collected and Deposited?
Historically, the business payer deposited the 6% levy by the 7th of the following month and filed Form 1, normally by June 30 of the next financial year. These rules still matter for older liabilities.
- 6% deduction: The qualifying payer deducted the levy from specified-service consideration paid or payable. Earlier unpaid liabilities were not cancelled.
- 6% levy deposit deadline: The deducted amount had to be deposited by the 7th of the month following the month in which the deduction was made.
- Annual statement: Form 1 was normally due by June 30 of the following financial year. Check any official extension applicable to the period being corrected.
- 2% levy: Operators paid quarterly, by July 7, October 7, January 7 and March 31 for the respective quarters, and filed Form 1 annually. The Indian customer did not collect this levy.
- Non-compliance: Defaults could attract interest and penalties. For the 6% levy, non-deduction or non-payment by the income-tax return due date could also disallow the expense until payment.
Equalisation Levy on Online Advertising and E-commerce Transactions
The 6% advertising levy ended from April 1, 2025; the 2% e-commerce levy ended from August 1, 2024. Their historical scope and payment duties differed.
- Online advertising (6%, ended April 1, 2025): Covered business-use online ads, advertising space and related facilities from qualifying non-residents, subject to the threshold and PE rules.
- E-commerce (2%, ended August 1, 2024): Covered operators’ online goods or services and transactions they facilitated. Indian residents, Indian-IP buyers and certain India-linked advertising or data sales were in scope, subject to exclusions.
Is Equalisation Levy Abolished in India?
Yes. The 2% levy ended from August 1, 2024 and the remaining 6% levy from April 1, 2025. Earlier liabilities, statements and notices still need attention.
- 2% e-commerce levy: The Finance (No. 2) Act 2024 ended the levy for e-commerce supply or services made, provided or facilitated from August 1, 2024.
- 6% advertising levy: The Finance Act 2025 ended its application to consideration received or receivable for specified services from April 1, 2025.
The abolition of a tax changes the treatment of transactions going forward, but it does not automatically settle obligations arising during the period when the tax was in force. Businesses that previously made payments to non-resident digital service providers should review their historical transactions, deduction records and filings before assuming their compliance obligations are over.
What Changed After the Equalisation Levy Abolition in 2024?
The 2024 change ended the 2% levy for e-commerce supplies from August 1, 2024. The 6% advertising levy ended later, from April 1, 2025. Earlier compliance duties survived.
- Compliance and filing: Operators still had to settle earlier liabilities and file statements for chargeable periods, including the pre-abolition part of FY 2024–25.
- Indian buyers: Removal of the levy did not guarantee lower prices. Any savings depended on the platform’s pricing decisions.
- Indian exporters on foreign marketplaces: The law excluded consideration attributable to Indian-resident-owned goods or Indian-resident-provided services. It did not automatically tax their full transaction value. Platform fees need separate analysis.
- 6% levy: The 2024 change initially left it in place. New obligations ended from April 1, 2025; earlier liabilities and statements remain relevant.
What Is the Difference Between Equalisation Levy and TDS?
Equalisation levy was a standalone tax under the Finance Act 2016. TDS collects income tax in advance. Eligible TDS is creditable against income tax; equalisation levy was not. Abolition does not automatically remove withholding duties.
- Nature of tax: TDS collects income tax in advance. Equalisation levy was a standalone tax under the Finance Act 2016, outside the income-tax framework.
- Applicability: Non-resident withholding depends on Indian taxability and applicable treaties. The levy separately covered specified advertising and e-commerce transactions.
- Credit against tax liability: The recipient can credit TDS against their final income tax liability. There is no income tax credit for the equalisation levy, which is a separate obligation.
- Who deducts and bears it: The payer deducts income tax where required and historically deducted the 6% levy. Contractual gross-up terms can shift who ultimately bears the cost.
- Historical exemption: Section 10(50) of the Income-tax Act 1961 exempted qualifying levy-chargeable income. Do not extend it to new post-abolition payments; check their income-tax and treaty treatment separately.
⚠️ COMMON MISCONCEPTION
Equalisation levy was not a type of TDS. Ending the levy did not mean every payment to a foreign digital provider became free of income-tax withholding or GST.
What Should Indian Businesses Know After the Equalisation Levy Abolition?
Levy abolition does not remove separate FEMA, GST or RBI duties. Keep invoices and remittance records, meet applicable export-reporting requirements, and generate eBRCs where needed.
- FIRC or FIRA: Keep your bank’s or provider’s remittance records. FIRA and FIRC are not interchangeable, and a separate FIRC is not mandatory for every foreign payment. Export-service GST refunds require the relevant BRC or FIRC, as applicable.
- eBRC generation: Exporters self-certify through DGFT using bank-reported inward remittance messages and export details. This covers goods or services and is separate from EDPMS closure.
- EDPMS reporting: Your authorised dealer bank reports receipts and closes or updates applicable entries. Provide the required information and documents within the relevant timelines.
- Freelancers: Keep invoices and payment records. Services qualify as zero-rated exports only when GST conditions are met, not merely because the client pays from overseas.
⚠️ WATCH OUT
Equalisation levy abolition does not remove separate FEMA, GST or RBI duties. Check the current documentation and reporting rules for your transaction.
How Does Skydo Help You Receive International Payments?
Foreign payments still need clear records. Remittance advice, eBRC generation and EDPMS reconciliation serve different purposes; your export and the rules determine what is needed.
Skydo helps you manage payment records and export paperwork.
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- eBRC generation: Link your DGFT account, bulk-upload shipping bills, match inward remittance messages and approve eBRC generation. Review details before certification. This does not close EDPMS entries.
- EDPMS closure: Skydo offers assistance; the authorised dealer bank updates EDPMS. Provide the required details and confirm closure or update.
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Is the equalisation levy removed from the CA Final DT syllabus?
Check ICAI’s Paper 4 material, amendment guidelines and updates for your CA Final attempt. Abolition alone does not establish examinability. The 6% levy ended from April 1, 2025; older material may describe it as active.
Under which section does the equalisation levy fall?
What is the current status of the equalisation levy in India?
Who still pays the 6% equalisation levy after the 2024 abolition?
Did the equalisation levy apply to Indian freelancers receiving foreign payments?
What is the difference between the 6% and 2% equalisation levy?
Is equalisation levy the same as income tax?
Does the abolition of the equalisation levy affect FIRC or eBRC requirements for Indian exporters?
