India to Scrap 6% Google Tax from April 2025, Boosting Tech Giants and Trade Ties
India is set to remove the 6% equalisation levy, also known as the “Google tax,” on digital advertising services from April 1, 2025, as part of amendments to the Finance Bill, 2025. Introduced in 2016, this tax applied to payments made by Indian businesses to foreign companies for online ads. The decision follows India’s removal of a 2% digital services tax in 2024 after trade tensions with the US, which had criticized the levy as discriminatory against American tech firms. The move aims to improve India-US trade relations and prevent potential tariff disputes.
Tech giants like Google and Meta will benefit from lower advertising costs, and Indian businesses may see reduced ad expenses, boosting digital marketing investments. The decision is also expected to attract more foreign investment into India’s digital economy. However, the government may introduce alternative tax measures to compensate for the loss of revenue. Additionally, amendments to tax assessment rules now redefine “Total Undisclosed Income” in search and seizure cases, and changes to offshore fund regulations will make it easier for funds to relocate to India.
India to Scrap 6% Google Tax from April 2025, Boosting Tech Giants and Trade Ties
In a significant policy shift, the Indian government has announced the removal of the 6% equalisation levy, commonly known as the “Google tax,” effective April 1, 2025. Introduced in 2016, this tax applied to payments made by Indian businesses to foreign companies like Google and Meta for online advertising services. The decision, part of amendments to the Finance Bill 2025, is intended to resolve trade disputes with the United States, which had criticized the levy as unfairly targeting American tech companies.
What Was the “Google Tax”?
The equalisation levy was designed to ensure that foreign companies without a physical presence in India paid taxes on revenue generated from Indian businesses. Initially set at 6% for online advertisements, it applied to annual payments exceeding ₹1 lakh. In 2020, India expanded the tax by introducing a 2% levy on e-commerce giants earning over ₹2 crore annually in India. However, the 2% tax was withdrawn last year following objections from the U.S., leaving only the 6% levy, which is now being abolished.
Why Is India Removing the Tax?
The primary motivation behind this decision is to improve trade relations with the U.S. The American government argued that the tax disproportionately affected its tech firms and had previously threatened to impose retaliatory tariffs on Indian exports, including shrimp, rice, and jewelry. By eliminating the tax, India aims to prevent potential trade conflicts and strengthen economic ties with its largest trading partner. Other countries, such as the U.K., are also reconsidering similar digital taxes to avoid trade disputes with the U.S.
Benefits for Global Tech Companies
The removal of the equalisation levy is expected to provide several advantages:
- Lower Advertising Costs – Indian businesses will pay less for digital ads on platforms like Google and Meta, encouraging higher spending on online marketing.
- Higher Profit Margins – Tech firms will no longer need to absorb the cost of the levy, improving their overall profitability.
- More Advertisers – Reduced costs could attract more businesses to invest in digital advertising, boosting revenue for tech platforms.
- Stable Trade Environment – Removing the tax helps prevent potential U.S. trade restrictions, ensuring a predictable business landscape for multinational firms in India.
Impact on India’s Digital Economy
This move is expected to boost foreign investment in India’s rapidly growing digital sector. Lower advertising costs could lead to increased spending on online marketing, benefiting businesses and digital platforms alike. However, to compensate for the revenue loss, the Indian government may introduce alternative taxation measures for foreign tech firms. While the equalisation levy is being removed, companies may still be subject to other tax provisions to ensure fair contributions to India’s economy.
Other Key Changes in the Finance Bill
Apart from eliminating the equalisation levy, the Finance Bill introduces several other important amendments:
- Tax Assessment Reforms – The phrase “Total Income” in search-and-seizure cases has been replaced with “Total Undisclosed Income.” This ensures that penalties apply only to previously unreported earnings, not declared income. Additionally, tax authorities will have greater power to investigate discrepancies between past and present tax filings.
- Changes to Offshore Fund Rules – A provision restricting Indian residents from participating in offshore funds has been eased by removing the word “indirectly.” This adjustment simplifies regulations and makes it easier for offshore funds to relocate to India, strengthening the country’s financial sector.
Looking Ahead
India’s decision to eliminate the equalisation levy reflects a strategic effort to align with global tax practices while maintaining strong international trade relationships. While this move benefits global tech giants, the government is likely to introduce alternative taxation measures to sustain revenue collection. Future policies may focus on modernizing tax frameworks to better accommodate the evolving digital economy.
In summary, abolishing the “Google tax” is expected to foster smoother India-U.S. trade relations, reduce costs for businesses, and create a more investment-friendly environment for global tech firms. However, India is likely to introduce new tax regulations to balance economic growth with fair revenue generation, ensuring that foreign companies continue to contribute to its tax system.