Govt may remove 6% Google tax on foreign digital advertising services from this date, tech giants to get benefits

India is planning to remove the 6% equalisation levy, popularly known as the “Google tax,” starting from April 1, 2025. This move is part of the recent amendments to the Finance Bill, according to a report by Reuters. The tax removal is seen as a step towards improving trade relations with the United States, which had earlier criticised the levy and even threatened to impose tariffs on Indian products.

What is the Google Tax?
The equalisation levy was first introduced by the Indian government in 2016. It was aimed at taxing payments made by Indian businesses to foreign digital companies for services like online advertisements. Since global tech giants like Google and Meta earn huge amounts of money from Indian users without having a physical presence in the country, this tax ensured that they contributed to India’s tax system.

Initially, the tax was set at 6% on online advertising services. In 2020, the scope of the levy was expanded to include a 2% tax on e-commerce companies that made annual business of over Rs 2 crore in India. However, the 2% tax was withdrawn last year after India and the US reached an agreement. Now, the Indian government plans to remove the 6% levy as well.

Why is India Removing the Google Tax?
The main reason for this decision is to strengthen trade ties with the US and avoid any trade conflicts. The US had previously threatened to impose heavy tariffs, up to 25%, on Indian products like shrimp, basmati rice, and jewellery in response to this levy. Experts believe that removing this tax will help improve India-US relations and avoid future disputes. Other countries like the UK are also considering similar steps to maintain smooth trade relations with the US.

How Will It Benefit Tech Companies and Advertisers?
The removal of the Google tax is good news for tech giants like Google and Meta. Indian businesses advertising on these platforms will no longer have to pay the additional 6%, making digital advertising more affordable. This will encourage more businesses to spend on online ads, increasing revenue for digital platforms. At the same time, tech companies will benefit from better profit margins and a more stable business environment without the threat of retaliatory tariffs from the US.

Impact on India’s Digital Economy
Removing the tax could also boost India’s growing digital economy. With lower costs, more companies might turn to digital marketing, benefiting businesses across different sectors. It will also make India a more attractive market for foreign investors.

Other Changes in the Finance Bill
Besides scrapping the equalisation levy, the Finance Bill also includes changes to offshore fund management rules. One important change is the removal of the word “indirectly” from rules that previously restricted Indian residents from taking part in offshore funds. This change will make it easier for offshore funds to relocate to India. Experts believe these steps will simplify tax laws and make business operations smoother.