The Modi government has proposed to abolish the equalization fee or digital tax on online advertisements from April 1 under 59 amendments in the Finance Bill-2025. This bill is being debated in the Lok Sabha. This move will be a big benefit for digital platforms like Google, X (earlier Twitter), and Meta.

It is worth noting that the US has threatened to impose a retaliatory duty on India from April 2. The equalization fee or digital tax was imposed on online advertising services on June 1, 2016. Its purpose was to ensure a fair share of tax from the digital economy. So let’s know the reason behind this decision and what impact it will have on digital companies.

A 6 percent duty was levied on online advertisements

Amendments to the Finance Bill-2025 were introduced in the Lok Sabha by Minister of State for Finance Pankaj Chaudhary. The government had removed the 2 percent equalization fee levied on e-commerce transactions last year, but the 6 percent fee on online advertisements continued.

Amit Maheshwari, tax partner, AKM Global, said that the 2 percent duty was heavily criticized in the US, but now the government is showing a more liberal attitude to avoid confrontation in case of imposition of higher duty. The removal of a 6 percent equalization duty on online advertising is a step in the same direction. However, it remains to be seen whether these steps will soften the US stance.

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What will be the effect of this move

Nangia Andersen LLP partner Vishwas Panjiyar said that the proposal to completely abolish the equalization duty is a step in the right direction, as it increases the confidence of taxpayers and also addresses the concerns of allied countries (such as the US) about the unilateral nature of the duty.

Anil Talreja, partner, at Deloitte India, said that the amendments proposed in the Finance Bill-2025 are largely clarifying. These address the doubts and issues of taxpayers and big businesses. Experts believe that this move will also help in presenting India as an attractive investment destination.

The threat of US retaliation

It is important to note that the US has threatened to impose retaliatory tariffs on India from April 2. It will be interesting to see if this move by the Indian government softens the US stance or not. Trade relations between the two countries may depend on this issue. This move by the government has certainly brought relief to digital companies, but only time will tell what impact it will have on the international trade scenario.

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