On March 25, the Finance Minister, just before passing the Finance Bill 2025 in the Lok Sabha, made a significant announcement regarding the withdrawal of the 6% Equalisation Levy, colloquially known as the Google Tax, effective from April 1, 2025.

A Brief History of India’s Google Tax

India first set up a committee on e-commerce taxation in 2001. The committee strongly felt that e-commerce should not be exempt from direct taxes and emphasized the need to examine tax incidence and mechanisms for levy and collection. Another committee on e-commerce taxation was formed in 2015, which highlighted key challenges, including the redundancy of physical presence in tax jurisdictions, characterisation of digital goods and services payments, difficulties in levying taxes at the source, unfair advantages for foreign players over domestic businesses, and the necessity of a withholding tax on digital transactions.

The committee recommended an equalisation levy on specified services at a rate between 6% and 8%. In line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plans, India introduced a 6% levy on 12 digital services, including online advertising, from June 1, 2016. The Union Budget 2018-19 further expanded the concept of Business Connection by introducing Significant Economic Presence in India’s tax framework. The Union Budget 2020-21 extended the levy to e-commerce companies, imposing a separate 2% tax on them.

In June 2020, the U.S. Trade Representative (USTR) initiated a Section 301 investigation into digital services taxes imposed or proposed by several countries, including India, Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the United Kingdom. The investigation concluded that India's Google Tax was discriminatory, contravened international tax principles, was unreasonable, and restricted U.S. commerce.

Following an agreement with the U.S., the Union Budget 2024-25, presented in July 2024, eliminated the 2% levy on non-resident e-commerce operators from August 2024. Now, the Union Budget 2025-26 has proposed the withdrawal of the remaining 6% levy from April 2025.

Impact

India’s sudden decision is largely seen as an effort to push the U.S. administration to delay or reconsider its reciprocal tariffs set to take effect in April. Reports indicate that India has collected a modest ₹4,000 crore from this tax. By withdrawing the levy, India has softened its earlier hard stance on unilaterally taxing the digital economy.

The sunset of the Google Tax will benefit major U.S. tech giants such as Google and Amazon by reducing their tax burden and operational costs. Additionally, it aligns India with the OECD’s global tax framework and contributes to the government's broader efforts to simplify tax legislation and provide greater certainty to taxpayers.

Notably, on the very day India announced this move, a U.S. delegation arrived in the country for trade talks. Whether India's shift from a protectionist approach to a more accommodative and pragmatic stance will ultimately safeguard its economic interests remains to be seen. Only time will tell.

Views are personal. The author is Founder & CEO, Shree Tax Chambers