Equalisation Levy at 6% on online advertising continues in FY 2026-27 while the 2% e-commerce levy was withdrawn from 1 August 2024. Compliance and Pillar One impact.
Equalisation Levy was India's pioneering attempt to tax digital advertising and e-commerce revenues earned by non-residents from Indian users. Introduced as Chapter VIII of the Finance Act, 2016 at 6% on online advertising payments, it was significantly broadened by the Finance Act, 2020 to include a 2% levy on e-commerce operators. The Finance Act, 2023 then withdrew the 2% e-commerce equalisation levy with effect from 1 August 2024 to align with the OECD Pillar One direction. The remaining 6% advertising levy still applies in FY 2026-27.
Current Structure of Equalisation Levy
- 6% on consideration for specified online advertisement services paid by a resident or a non-resident with a permanent establishment in India to a non-resident service provider, where the aggregate payment to a single non-resident exceeds ₹1 lakh in a financial year.
- 2% on e-commerce supply or services by non-resident e-commerce operators — withdrawn with effect from 1 August 2024.
- Specified services covered include online advertising, provision of digital advertising space or any other facility or service for online advertising.
- Equalisation Levy is not income tax; it is a separate levy under Chapter VIII of the Finance Act and not part of the Income-tax Act.
Who Must Deduct and Pay
The resident payer or the non-resident having a PE in India is required to deduct the 6% Equalisation Levy from the payment to the non-resident service provider and deposit it with the Government by the 7th of the following month. The non-resident is not required to file an Income-tax Return for this income, since it is exempt under Section 10(50) of the Income-tax Act.
Compliance Requirements
- Deduct 6% Equalisation Levy at the time of payment or credit, whichever is earlier.
- Deposit the levy to the Central Government by the 7th of the following month.
- File annual statement in Form 1 by 30 June of the following financial year.
- Maintain records of payments, agreements and gross amount of consideration.
- Reconcile Equalisation Levy with foreign currency outward remittances and Form 15CA filings.
Why the 2% Levy Was Withdrawn
The 2% e-commerce equalisation levy was a unilateral measure that attracted significant opposition from the US and prompted Section 301 retaliatory tariff threats. India committed to the OECD/G20 Inclusive Framework's two-pillar solution, with Pillar One reallocating taxing rights to market jurisdictions. The Finance Act, 2023 therefore sunsetted the 2% levy from 1 August 2024 to honour the framework arrangement, although the broader Pillar One implementation continues to evolve.
Interaction With Income-tax and DTAA
Section 10(50) of the Income-tax Act exempts income chargeable to Equalisation Levy from income tax to avoid double taxation. Once the 2% levy was withdrawn, income from e-commerce supply or services by non-residents to Indian customers may again become subject to Indian income tax under the significant economic presence (SEP) and Section 9 rules. Indian payers must therefore re-evaluate TDS under Section 195 on such payments, factoring in DTAA relief and SEP analysis.
Penalty and Interest
- Interest at 1% per month or part of a month on delayed payment of levy.
- Penalty equal to the amount of unpaid Equalisation Levy.
- Penalty of ₹100 per day for delay in filing the annual statement in Form 1, subject to a cap.
- Penalty up to ₹10,000 for failure to comply with notices issued by the Assessing Officer.
Operational Best Practices
Indian advertisers paying for Facebook, Google, LinkedIn, X and similar non-resident advertising platforms must build the 6% Equalisation Levy into their billing reconciliation. Most platforms now invoice gross-of-levy and provide credit notes, but accounting teams should still tag invoices, verify aggregate annual payment to each non-resident vendor, and ensure the 7th-of-the-following-month deposit deadline is met. For FY 2026-27, integrate Equalisation Levy into the monthly close checklist alongside TDS and GST.
Conclusion
Equalisation Levy has evolved from a small advertising levy to a wider digital tax, and then partially back as India aligned with global tax architecture. The 6% advertising levy continues to apply through FY 2026-27. Treat it as a routine monthly compliance, but watch the OECD Pillar One developments closely — the next round of digital tax design will reshape how Indian payers think about non-resident invoices.
