What is Equalisation Levy?

How it works

The payer deducts and deposits the advertising levy and files an annual statement; income subject to the levy is exempt from income tax under Section 10(50).

Two levies, both now withdrawn

The equalisation levy arrived in two waves and has been dismantled in two. The original levy under the Finance Act 2016 charged 6% on payments to non-residents for online advertising and related digital advertising space, where the payer was an Indian resident carrying on business or a non-resident with a permanent establishment in India, above a threshold of Rs.1,00,000 per payer per year. The Finance Act 2020 added a 2% levy on the consideration of non-resident e-commerce operators with turnover above Rs.2 crore from Indian users. The 2% levy was withdrawn with effect from 1 August 2024, and the 6% advertising levy with effect from 1 April 2025 — so for FY 2026-27 no equalisation levy applies to fresh transactions.

Why it still appears in assessments

Withdrawal is prospective, and the levy remains live for earlier periods. Open items include unpaid levy on advertising payments up to 31 March 2025, the annual statement in Form 1 for those years, interest at 1% per month on delayed deposit, and penalty exposure for failure to deduct. Because the levy sat outside the Income-tax Act it carried a structural sting: it was not a tax on income, so it attracted no treaty protection and no foreign tax credit in the recipient's home country — a cost economically borne by the Indian payer under most contracts.

Worked example

An Indian company spent Rs.50,00,000 on advertising with a non-resident platform during FY 2024-25. The 6% levy of Rs.3,00,000 was deductible at payment and payable by the seventh of the following month, with Form 1 due by 30 June 2025. Income covered by the levy was exempt in the recipient's hands under Section 10(50), avoiding a double charge. From 1 April 2025 the same spend carries no equalisation levy — but the withholding analysis under Section 195, and the treaty position on royalty or fees for technical services, still has to be run on its own terms.

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.