The "Google Tax" in India: Why the Equalisation Levy No Longer Exists in 2026

If you're still budgeting for a 2% or 6% Equalisation Levy on payments to Google, Meta, or a foreign e-commerce platform, stop, that levy is gone. India abolished the 2% e-commerce Equalisation Levy on August 1, 2024, and scrapped the original 6% levy on online advertising entirely from April 1, 2025. As of the current financial year, there's no separate "Google Tax" left to deduct. What replaced it is more familiar and, for most businesses, more complicated: standard income-tax rules under Section 195, layered with whatever the relevant tax treaty says.

If you searched for "Equalisation Levy" or "Google Tax" expecting a straightforward 2% deduction rule, the honest answer in 2026 is that this specific tax doesn't apply anymore. Here's what it used to be, why it was withdrawn, and what actually governs your payments to foreign digital platforms now.

What the Equalisation Levy used to be

India introduced the Equalisation Levy in 2016, aimed squarely at foreign digital companies earning money from Indian users without having any physical office, server, or employee in the country, the classic problem of taxing a business that has no fixed "place" under old-fashioned tax rules. It arrived in two versions over the years.

• EL 1.0, the original 6% levy (2016). This applied to payments made by an Indian business to a non-resident for online advertising services, digital ad space, or any related facility, where total payments to that non-resident crossed ₹1 lakh in a year. If your company paid Google or Meta directly for ad placements, you were expected to deduct 6% before remitting the payment. This is the version that earned the nickname "Google Tax," since Google's ad business was the levy's most obvious target.

• EL 2.0, the 2% e-commerce levy (2020). This extended the concept to non-resident e-commerce operators more broadly, covering online sale of goods owned by the operator, online provision of services, and any sale or service the operator merely facilitated through its platform. It applied at 2% on the consideration received by the foreign operator from Indian customers or businesses.

Both versions shared the same underlying logic: since these companies weren't otherwise taxable under India's existing income-tax framework or under most tax treaties, a separate, treaty-independent levy was the government's way of "equalising" the tax burden between a foreign digital platform and a comparable Indian business paying full domestic tax.

The abolition timeline

The rollback happened in two clean stages, both tied to specific Finance Acts.

1. August 1, 2024: The 2% e-commerce EL was withdrawn first, announced in the July 2024 budget speech. From this date, foreign e-commerce operators stopped being liable for the 2% levy on new transactions.

2. April 1, 2025: The original 6% advertising EL followed, withdrawn through the Finance Act, 2025. From this date, Indian businesses paying non-resident platforms for online advertising no longer deduct the 6% levy either.

A related, easy-to-miss change came with this: Section 10(50) of the Income Tax Act, which exempted EL-taxed income from regular income tax, sunsets from Assessment Year 2026-27. That exemption existed specifically because EL-taxed income was already taxed once, through the levy itself. With the levy gone, income that used to sit outside the income-tax net through Section 10(50) is now squarely back inside it, assessed under the ordinary rules.

One detail worth being precise about: the withdrawal isn't retrospective. Receipts and payments that fall before the relevant cutoff date remain governed by the old EL rules, including pending assessments, appeals, and refund claims from that period. If your business has an EL dispute sitting with the Commissioner (Appeals) or the Income Tax Appellate Tribunal from an earlier year, that process continues under the old framework even though the levy itself no longer applies going forward.

Why India rolled it back

The Equalisation Levy was always a unilateral measure, India acting on its own ahead of a broader global consensus, rather than waiting for one. That created two separate pressures that eventually pushed the government to withdraw it.

• International trade friction. The US government had investigated digital services taxes in several countries, including India, Austria, Italy, Spain, Turkey, and the UK, on the grounds that these levies disproportionately targeted large American technology companies like Google, Meta, Apple, and Amazon. Removing the EL was, in part, a way to reduce a specific point of tension in India-US trade discussions.

• The OECD's Pillar One framework. Globally, the OECD has been building a coordinated approach to taxing large multinational digital businesses, intended to replace the patchwork of unilateral digital taxes different countries introduced independently. As India moved toward participating in that coordinated framework, keeping its own standalone EL alongside it stopped making sense, and withdrawing it was framed as clearing the way for the multilateral approach instead.

What applies now instead

With the EL gone, payments to non-resident digital platforms fall back under India's regular international tax framework. In practice, that means three things layer on top of each other for any payment to a foreign platform.

1. Section 195 withholding. Any payment to a non-resident, including for digital advertising, software, or platform services, needs to be evaluated for tax deduction at source under Section 195, based on whether the payment is taxable in India at all under domestic law.

2. Classification matters more than before. Under the EL regime, a flat rate applied regardless of how the payment was legally characterised. Now, the same payment has to be classified correctly—is it royalty, fees for technical services, business income, or something else entirely—since each classification carries a different tax treatment and different treaty implications. A payment to Google Ads, for instance, now needs to be assessed under Section 195 and may be treated as royalty income for the non-resident, triggering TDS depending on what the relevant Double Taxation Avoidance Agreement (DTAA) says.

3. Significant Economic Presence (SEP) still exists separately. India's SEP provision, introduced in 2018 and notified in 2021, is a different nexus rule from the EL and wasn't withdrawn alongside it. Under SEP, a non-resident is treated as having a taxable presence in India if its receipts from Indian residents exceed ₹2 crore in a financial year, or if it systematically solicits business from or interacts with at least 3 lakh users in India. This remains a live basis for taxing a foreign digital business even without the EL in place.

Practical implications for Indian businesses

If your company runs ad campaigns on Google, Meta, or similar platforms, or pays for SaaS tools, cloud hosting, or marketplace fees billed by a foreign entity, the compliance shift is real even though the headline news is "a tax got removed."

• Stop budgeting a flat 2% or 6% EL deduction. That line item in your vendor payment workflow is obsolete for transactions from the relevant cutoff dates onward.

• Start classifying each payment type properly. Whether a payment to a foreign SaaS or ad platform counts as royalty, fees for technical services, or ordinary business income determines whether TDS applies at all, and at what rate under the applicable DTAA.

• Check whether your vendor has a Permanent Establishment or SEP exposure in India. This shifts more of the compliance and disclosure burden onto the transaction structure rather than a flat withholding percentage.

• Keep EL-period records separate. If you made payments before August 2024 (e-commerce) or April 2025 (advertising), those transactions and any related disputes still sit under the old EL rules, not the current framework.

• Talk to a tax professional for DTAA-specific treatment. Since the right classification and rate genuinely depends on which country your vendor is based in and what that country's treaty with India says.

For help with GST registration for e-commerce operators or understanding who needs to file ITR, consult with our expert team to ensure your business remains compliant in the post-EL era.

FAQs

Is the Equalisation Levy still applicable in India in 2026?

No. The 2% e-commerce levy ended on August 1, 2024, and the 6% advertising levy ended on April 1, 2025. Both have been fully withdrawn for current transactions.

If I paid Google or Meta for ads last year, do I still need to deduct the Equalisation Levy?

Only if the payment relates to a period before April 1, 2025. Payments for services from that date onward are no longer subject to EL, though they may still require TDS under Section 195 depending on classification.

What replaced the Equalisation Levy?

There's no single replacement rate. Payments to non-residents are now assessed individually under Section 195, based on how the payment is classified and what the relevant DTAA allows, alongside India's separate Significant Economic Presence rules where applicable.

Does GST still apply to services from Google, Meta, or foreign SaaS platforms?

Yes. The Equalisation Levy was a separate income-tax-adjacent charge and never overlapped with GST. Foreign OIDAR service providers and digital platforms still fall under GST's reverse charge or direct-registration rules at the standard 18% rate, entirely independent of the EL's abolition.

Why was the Google Tax nicknamed that if it applied to more than just Google?

The name stuck because Google's advertising business was the levy's original, most visible target when it launched in 2016, even though the 6% rate technically applied to any qualifying non-resident digital advertising payment, not Google specifically.

Are there still pending disputes from the old Equalisation Levy years?

Yes. The withdrawal isn't retrospective, so assessments, appeals, and refund claims for pre-withdrawal periods continue under the earlier EL framework, and the Commissioner (Appeals) and Income Tax Appellate Tribunal retain jurisdiction over those older matters.