Equalization Levy

The Equalisation Levy was introduced by the Finance Act, 2016 to tax non-resident service providers offering online advertisement services, digital advertising space, or any other service related to online advertisements. The purpose of this levy was to ensure that online services provided by foreign companies to Indian businesses are appropriately taxed in India, addressing concerns about tax base erosion due to the increasing digitalization of business activities.

Originally, the Equalisation Levy applied only to payments made for online advertisement services, including the provision of digital advertising space and any facility intended for online advertisements. This was particularly aimed at foreign service providers like Google, Facebook, and other international platforms who were earning revenue from Indian businesses but were not subject to Indian taxation under existing provisions.

However, as e-commerce has grown globally, the Indian government extended the scope of the levy through the Finance Act, 2020, bringing e-commerce transactions into its ambit. The levy was broadened to include e-commerce supply and services facilitated by non-resident e-commerce operators, effective from April 1, 2020.

Transactions Subject to Equalisation Levy

Online Advertisement Services:

A non-resident service provider who receives or is entitled to receive payments for services in the nature of online advertisement, digital advertising space, or any other facilities for the purpose of online advertisement is subject to a 6% Equalisation Levy.

The levy is charged on the amount of consideration paid or payable for these services.

E-commerce Supply and Services:

As of 1st April 2020, 2% Equalisation Levy applies to the sum received or receivable for e-commerce supply of goods or services made or facilitated by e-commerce operators. This applies to transactions made or facilitated on or after April-2020, but before August-2024.

Equalisation Levy in India – Rate Table

Taxability and Income Exemption

One of the significant features of income chargeable to Equalisation Levy is that it is exempt from income tax under Section 10(50) of the Income-tax Act.

This provision ensures that the same income is not taxed twice—once under the Equalisation Levy and again under the regular income tax provisions.