Equalisation Levy in India, Its Abolition and What Now Applies

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

India's equalisation levy is abolished. The 2 percent levy on non resident e commerce operators stopped for consideration on or after 1 Aug 2024, under the Finance (No. 2) Act, 2024. The 6 percent levy on online advertising stopped for consideration on or after 1 Apr 2025, under the Finance Act, 2025. Foreign digital companies now face Indian income tax only through a business connection or permanent establishment, plus GST on OIDAR services.

This page covers the levy's history from 2016, the two abolition dates and what now applies to a foreign digital company: significant economic presence, treaty protection, withholding and GST. It also covers the compliance that still runs for past years.

What was the equalisation levy in India?

The equalisation levy was a tax on gross payments to non residents for digital services. The Finance Act, 2016 brought in a 6 percent levy on online advertising from 1 Jun 2016. The Finance Act, 2020 added a 2 percent levy on e commerce supply or services from 1 Apr 2020. Income that bore the levy was exempt from income tax under section 10(50) of the Income Tax Act, 1961.

The levy sat outside the Income Tax Act. Chapter VIII of the Finance Act, 2016 (sections 163 to 180) contained it. That design let India tax non residents with no physical presence without touching its tax treaties. A treaty limits income tax. The levy was not framed as income tax.

The Income Tax Department's equalisation levy page sets out both levies. It now carries the notice that the provisions "are not applicable w.e.f. AY 2026-27". The department's web guide puts the end date as 1 Apr 2025.

Chapter VIII came into force on 1 Jun 2016. The Central Government appointed that date under section 163(2) by S.O. 1904(E) of 27 May 2016. The Equalisation Levy Rules, 2016 were published the same day as S.O. 1905(E). The Lok Sabha record of papers laid by the Ministry of Finance lists both notifications.

Date	Event	Instrument
1 Jun 2016	6% levy on online advertising starts	Finance Act, 2016, Chapter VIII; S.O. 1904(E) of 27 May 2016 under section 163(2)
1 Apr 2020	2% levy on e commerce supply or services starts	Finance Act, 2020, section 165A
6 Jan 2021	USTR issues its Section 301 report on India's levy	USTR; India's response on PIB, 7 Jan 2021
2021, effective from 1 Apr 2020	Explanation on what counts as online sale and online services	Finance Act, 2021, section 164(cb)
24 Nov 2021	India and the US agree a transitional approach on the 2% levy	Ministry of Finance release on PIB
28 Jun 2024	Transitional approach extended to 30 Jun 2024	Ministry of Finance release on PIB
1 Aug 2024	2% levy stops for consideration on or after this date	Finance (No. 2) Act, 2024, section 163(3)
1 Apr 2025	6% levy stops for consideration on or after this date	Finance Act, 2025, section 163(3)
AY 2026-27	Section 10(50) exemption switched off	Finance Act, 2025, section 6
1 Apr 2026	Income Tax Act, 2025 in force, with no equalisation levy	Income Tax Act, 2025

Is the equalisation levy abolished?

Yes. Both levies have ended. Section 163(3) of the Finance Act, 2016, as it now reads, applies the 6 percent levy only to consideration for specified services before 1 Apr 2025. It applies the 2 percent levy only to e commerce supply or services from 1 Apr 2020 but before 1 Aug 2024. No levy is due on later payments.

The Income Tax Department publishes the amended section 163 under the heading "Equalisation Levy (Abolished)". Parliament did not repeal Chapter VIII outright. It cut off the period to which the Chapter applies. That matters for old years, because the Chapter still governs consideration before the cut off dates.

Two separate Acts made the cuts:

1. The Finance (No. 2) Act, 2024 ended the 2 percent e commerce levy for consideration on or after 1 Aug 2024.
2. The Finance Act, 2025 (Act No. 7 of 2025, assent 29 Mar 2025) ended the 6 percent advertising levy for consideration on or after 1 Apr 2025.

The Finance Act, 2025 also added a proviso to section 10(50) of the 1961 Act. Section 6 of that Act says the exemption does not apply to income of the previous year relevant to assessment year 2026-27 or later. That is income of financial year 2025-26 onwards, the first full year with no levy.

How did the 6 percent levy on online advertising work?

The 6 percent levy applied to consideration a non resident received for a specified service from a resident in business or from a non resident with a permanent establishment in India. The Indian payer deducted the levy from the payment. No levy applied where the payments to one non resident in a year did not exceed INR 1 lakh.

Section 164(i) defined a specified service as online advertisement, any provision for digital advertising space or any other facility or service for online advertising.

The levy did not apply in three cases, per the department's page:

1. The non resident had a permanent establishment in India and the service was effectively connected with it.
2. The payer used the service for personal purposes, not for business or profession.
3. Payments from that payer did not exceed INR 1 lakh in the previous year.

The payer deposited the levy by the 7th of the following month in Challan ITNS 285. It filed an annual statement in Form 1 by 30 June after the financial year. Section 40(a)(ib) of the 1961 Act disallowed the payer's expense for a year if the levy was not deposited by the return due date. The deduction came back in the year of payment.

How did the 2 percent levy on e commerce operators work?

The 2 percent levy applied to consideration a non resident e commerce operator received for e commerce supply or services. The operator itself paid it, every quarter. No levy applied where the operator's e commerce receipts were below INR 2 crore in the previous year, or where the operator had an effectively connected permanent establishment in India.

Section 164(ca) defined an e commerce operator as a non resident who owns, operates or manages a digital or electronic platform for online sale of goods or online services. Section 164(cb) covered sales of the operator's own goods, its own services and sales it facilitated. The Finance Act, 2021 added an Explanation from 1 Apr 2020. It said an online sale includes any one of these done online: accepting an offer, placing or accepting a purchase order, paying the consideration, or supplying the goods or services.

The quarterly due dates were 7 Jul, 7 Oct, 7 Jan and 31 Mar. Where a transaction fell under both levies, it was charged at 6 percent under section 165 only. The proviso to section 163(3) also excluded consideration taxable in India as royalty or fees for technical services.

Feature	6% levy on specified services	2% levy on e commerce supply or services
Charging section, Finance Act, 2016	165	165A
Who received the money	Non resident providing online advertising	Non resident e commerce operator
Who paid the levy to the government	Indian payer, by deduction	The e commerce operator itself
Threshold	Over INR 1 lakh a year from one payer	E commerce receipts of INR 2 crore or more a year
Due date	7th of the next month	7 Jul, 7 Oct, 7 Jan and 31 Mar
First consideration covered	From 1 Jun 2016	From 1 Apr 2020
Last consideration covered	Before 1 Apr 2025	Before 1 Aug 2024
Exemption in the payee's hands	Section 10(50), 1961 Act	Section 10(50), 1961 Act
Ended by	Finance Act, 2025	Finance (No. 2) Act, 2024

Why did India abolish the equalisation levy?

The levy was a unilateral digital tax, and it drew a trade dispute with the United States. The USTR reported on 6 Jan 2021, under Section 301, that India's 2 percent levy discriminated against US companies. India replied the next day that the levy was not discriminatory. The two countries then agreed a transitional approach on 24 Nov 2021.

India's response of 7 Jan 2021 said the levy applied to all non resident operators without a PE in India, whatever their country. It said the levy aimed at a level playing field between resident and non resident sellers.

Under the transitional approach of 24 Nov 2021, India kept the 2 percent levy for an interim period. That period ran from 1 Apr 2022 to the start of OECD Pillar One or 31 Mar 2024, whichever came first. The USTR release of the same day covered levy that US companies accrued in the interim. In defined cases it could be credited against future Pillar One tax. The US agreed to terminate its additional duties on Indian goods, which were already suspended.

On 28 Jun 2024, the two countries extended the arrangement to 30 Jun 2024. The Finance (No. 2) Act, 2024 then ended the 2 percent levy from 1 Aug 2024. The 6 percent levy followed from 1 Apr 2025. Neither Act states its reasons in the text, so we do not attribute a motive beyond this record.

What tax now applies to foreign digital companies in India?

Income tax applies, as for any other non resident. A foreign digital company is taxable in India on business income only through a business connection under section 9 of the Income Tax Act, 2025, which includes significant economic presence. If a tax treaty applies, India taxes business profits only where the company has a permanent establishment in India.

So the question for each revenue stream has three parts:

1. Is the receipt royalty, fees for technical services or interest? If so, section 9 and section 207 tax it on a gross basis, subject to the treaty rate.
2. If it is business income, does the company have a business connection in India, including SEP?
3. If the company is resident in a treaty country and claims the treaty, does it have a PE in India?

GST runs separately and did not change with the levy's abolition. Online advertising, cloud services and digital content sold from abroad are OIDAR services under the IGST Act.

Our batch guide to significant economic presence and business connection works through section 9 in detail. Our guide to permanent establishment risk covers the treaty test.

How does significant economic presence tax digital businesses?

Significant economic presence is a business connection under section 9(9)(d) of the Income Tax Act, 2025. It exists when payments from India to the non resident exceed INR 2 crore in a tax year. It also exists when the non resident systematically and continuously solicits business from, or interacts with, 3 lakh users in India. Rule 13 of the Income Tax Rules, 2026 sets both numbers.

The section 9 text says SEP applies whether or not the non resident has a residence, place of business or services in India. The payments test covers goods, services and property, including downloads of data or software. Rule 13 carries the same thresholds that rule 11UD of the 1962 Rules set from 1 Apr 2022.

SEP does not tax the whole revenue. Section 9(9)(f) taxes only the income reasonably attributable to the Indian transactions or activities. Section 9(9)(g) adds that this income includes:

1. Income from advertising aimed at customers in India or reached through an Indian IP address.
2. Income from selling data collected from people in India or using an Indian IP address.
3. Income from selling goods or services that use such data.

A foreign company with SEP pays tax on that attributable income at 35 percent, plus surcharge and 4 percent cess. It must also file a return in India, because the return exemption in section 207(8) covers only income on which tax was withheld at the section 207 rates.

Does a tax treaty protect a foreign digital company from Indian tax?

Yes, where the company is resident in a treaty country, holds a Tax Residency Certificate and has no permanent establishment in India. Section 159(4) of the Income Tax Act, 2025 lets a non resident apply the treaty where it is more beneficial. Treaty PE tests need a physical or agency presence, so SEP alone does not create one.

Section 159(8) makes the treaty claim conditional. The company needs a certificate of residence from its home tax authority and the information in Form 41 (old Form 10F). Our guide to Form 10F, now Form 41, and the TRC explains the filing.

This is the main effect of the abolition. While the levy applied, a US, Irish or Singapore platform with no Indian PE still bore 6 or 2 percent on Indian revenue. Today the same platform bears no Indian income tax on that business income. The treaty claim must still survive the principal purpose test and GAAR, and the facts must not create a fixed place, service or agency PE.

Software licence income needs separate care. Indian domestic law treats many software payments as royalty. The Supreme Court held on 2 Mar 2021, in Engineering Analysis, that end user software licences are not royalty under India's treaties. Our pages on the India US DTAA and the India Singapore DTAA give the treaty articles.

What withholding applies now to payments to foreign digital companies?

No equalisation levy is deducted on payments after the cut off dates. Income tax withholding applies instead, but only on sums chargeable to tax in India. For payments from 1 Apr 2026 that is section 393(2) of the Income Tax Act, 2025. For payments in financial year 2025-26 it was section 195 of the 1961 Act.

An Indian company that buys online advertising from a treaty resident with no PE usually withholds nothing, because the income is not chargeable in India. It keeps the vendor's TRC, Form 41 and a no PE declaration on file. It also files Form 145 (old Form 15CA), and Form 146 (old Form 15CB) where needed, when it remits.

Where the vendor is from a country with no treaty and has SEP, the payment includes taxable income. The payer deducts tax on the chargeable portion at the rates in force. A foreign company can apply for a lower or nil deduction certificate in Form 128 under section 395. Our guides to TDS on payments to non residents and Forms 145 and 146 set out the steps.

Payment by an Indian company for online advertising	Up to 31 Mar 2025	1 Apr 2025 to 31 Mar 2026	From 1 Apr 2026
Equalisation levy	6% deducted, deposited by the 7th	None	None
Payee's income tax exemption	Section 10(50), 1961 Act	None	None
Income tax withholding, treaty resident with no PE	None, income exempt	None if not chargeable; keep TRC and Form 10F	None if not chargeable; keep TRC and Form 41
Income tax withholding, non treaty payee with SEP	None, income exempt	Section 195 on the chargeable portion	Section 393(2) on the chargeable portion
Remittance forms	Forms 15CA and 15CB	Forms 15CA and 15CB	Forms 145 and 146
GST on a payer registered in India	18% IGST under reverse charge	18% IGST under reverse charge	18% IGST under reverse charge
Expense disallowance if the payer defaults	Section 40(a)(ib) for the levy	Section 40(a)(i) for TDS	Section 35(b)(ii) for TDS

How does GST apply to foreign digital services after the levy?

GST was never part of the equalisation levy and did not change. Online advertising, cloud services, streaming and data services supplied from abroad are OIDAR services under section 2(17) of the IGST Act. Sales to unregistered users bear 18 percent IGST paid by the foreign supplier. Sales to registered businesses bear IGST under reverse charge.

The foreign supplier registers through Form GST REG-10 under section 14 of the IGST Act and files Form GSTR-5A every month. Since 1 Oct 2023 every unregistered person in India counts as a non taxable online recipient, including small businesses. Section 160 of the Finance Act, 2023 made that change, and Notification No. 28/2023-Central Tax brought it into force on 1 Oct 2023.

A registered Indian business that buys advertising from abroad pays IGST under section 5(3) of the IGST Act and claims input tax credit. Our batch note on OIDAR for foreign SaaS has the full GST position. Our guide to GST registration for foreign companies covers the Indian entity route.

What does the abolition mean for each type of foreign digital business?

The effect depends on the business model and the treaty position. Treaty residents with no Indian PE gained most, because they now pay no Indian tax on business income. Non treaty businesses swapped a gross levy for income tax on attributable profit, which can cost more or less.

Business model	Before (levy)	Now, treaty resident with no PE	Now, non treaty resident with SEP	GST now
Online advertising sold to Indian advertisers	6% levy deducted by the advertiser	No Indian income tax	Tax on attributable income at 35% plus surcharge and cess	OIDAR; reverse charge for registered buyers
Marketplace commission from Indian sellers	2% levy paid by the operator	No Indian income tax	Tax on attributable income	Depends on whether the service is OIDAR and its place of supply
Online sale of the operator's own goods to Indian buyers	2% levy on the gross sale	No Indian income tax on the sale	Tax on attributable income	Customs duty and IGST on import
Subscription to a hosted platform, no software licence	2% levy	No Indian income tax	Tax on attributable income	OIDAR at 18%
End user software licence	Excluded where taxed as royalty	Not royalty under most treaties	Royalty under section 9(6), taxed at 20% under section 207 plus surcharge and cess	OIDAR or supply of software
Sale of Indian user data	2% levy where facilitated online	No Indian income tax	Section 9(9)(g) income	Usually OIDAR

What compliance still runs for past years?

Chapter VIII still applies to consideration before the cut off dates. So past statements, assessments, interest and penalties continue. A business that paid or deducted the levy for financial year 2024-25 or earlier still has open items.

The department's page sets out the rules that still apply to those years:

1. Form 1 statement. Due by 30 June after the financial year. A late or revised statement can be filed within two years from the end of the financial year. For financial year 2024-25, that window ends on 31 Mar 2027.
2. Notice. If no statement is filed, the Assessing Officer can issue a notice requiring it. Failure to file after the notice costs INR 100 a day.
3. Interest. Late deposit carries simple interest at 1 percent of the levy for each month or part of a month.
4. Penalties. Failure to deduct costs a penalty equal to the levy. Failure to deposit after deduction costs INR 1,000 a day, capped at the levy. An e commerce operator that failed to pay faces a penalty equal to the unpaid levy.
5. Disallowance. Section 40(a)(ib) disallows an Indian payer's advertising expense for a year until it deposits the levy.

The 2 percent levy for 1 Apr 2024 to 31 Jul 2024 was due quarterly. The quarter from 1 Jul 2024 to 30 Sep 2024 covered only July, because the levy stopped on 1 Aug 2024.

What has happened since this page was first published?

This page first went live on 6 Mar 2026. Since then:

1. 1 Apr 2026. The Income Tax Act, 2025 came into force. It has no equalisation levy. SEP moved to section 9(9)(d) and rule 13, with the same INR 2 crore and 3 lakh thresholds.
2. 1 Apr 2026. Forms 145 and 146 replaced Forms 15CA and 15CB for remittances, and Form 41 replaced Form 10F for treaty claims.
3. 23 Oct 2026. The Income Tax Department's equalisation levy page still states that the provisions are not applicable from assessment year 2026-27.

The Budget of 1 Feb 2026, before this page's first date, did not bring the levy back. The Budget speech has no proposal on it. Our note on Union Budget 2026 for foreign owned companies lists what it did change.

What changed in 2026

Topic	Old rule	Rule now	Date	Instrument
6% levy on online advertising	Levied on consideration over INR 1 lakh a year	Not levied	Consideration from 1 Apr 2025	Finance Act, 2025
2% levy on e commerce operators	Levied on receipts of INR 2 crore or more	Not levied	Consideration from 1 Aug 2024	Finance (No. 2) Act, 2024
Exemption for levied income	Section 10(50), 1961 Act	Does not apply	AY 2026-27 onwards	Finance Act, 2025, section 6
SEP thresholds	Rule 11UD, 1962 Rules	Rule 13, Rules, 2026, same thresholds	Tax year 2026-27	Income Tax Rules, 2026
SEP provision	Explanation 2A to section 9(1)(i)	Section 9(9)(d)	1 Apr 2026	Income Tax Act, 2025
Treaty claim form	Form 10F	Form 41	1 Apr 2026	Income Tax Rules, 2026
Withholding on non residents	Section 195	Section 393(2)	1 Apr 2026	Income Tax Act, 2025
Remittance forms	Forms 15CA and 15CB	Forms 145 and 146	1 Apr 2026	Income Tax Rules, 2026

Worked example

Two foreign businesses earn from India. Both use assumed figures. Amounts are in INR.

Scenario 1: a Singapore ad platform. An Indian company buys online advertising worth INR 50,00,000 in a year from a platform resident in Singapore. The platform has no office, staff or agent in India.

Item	Financial year 2024-25 (levy applies)	Tax year 2026-27 (levy abolished)
Equalisation levy at 6%	3,00,000, deducted by the Indian company	Nil
Indian income tax on the platform	Nil, exempt under section 10(50)	Nil, no PE under the India Singapore DTAA
TDS under section 393(2)	Not applicable	Nil, income not chargeable; TRC and Form 41 on file
IGST under reverse charge at 18%	9,00,000, credit available	9,00,000, credit available
Indian tax cost to the platform	3,00,000	Nil

Scenario 2: a non treaty marketplace. A marketplace operator resident in a country with no Indian tax treaty earns INR 5,00,00,000 a year from Indian buyers. It has no PE, but payments exceed INR 2 crore, so it has SEP. We assume 10 percent of receipts is attributable profit. That share is an assumption for the example, not a rule.

1. Levy at 2 percent before 1 Aug 2024: 5,00,00,000 × 2% = INR 10,00,000.
2. Attributable income now: 5,00,00,000 × 10% = INR 50,00,000.
3. Income tax at 35 percent: INR 17,50,000.
4. Surcharge: nil, because income does not exceed INR 1 crore.
5. Cess at 4 percent: INR 70,000.
6. Total income tax: INR 18,20,000, or 3.64 percent of Indian receipts.

For this operator, the abolition raised the Indian tax cost from 2 percent to 3.64 percent of receipts. The result turns on the attributable share, which each business must support with its own functional analysis.

Common mistakes

1. Deducting the 6 percent levy on payments after 31 Mar 2025. No levy is due. Fix: remove the levy step from the payables process and the vendor master for those dates.
2. Assuming no Indian tax at all after the abolition. A non treaty business with SEP is taxable on attributable income. Fix: test SEP and the treaty position for each foreign digital vendor.
3. Claiming the treaty without papers. Section 159(8) needs a TRC and Form 41 for each tax year. Fix: collect both before the first payment of the year.
4. Dropping GST along with the levy. GST reverse charge on imported advertising still applies. Fix: report it in GSTR-3B every month and claim the credit.
5. Treating software licences like advertising. Domestic law may tax them as royalty at 20 percent. Fix: characterise each payment, then apply the treaty article.
6. Ignoring Form 1 for past years. Statements for financial year 2024-25 remain revisable until 31 Mar 2027. Fix: reconcile the levy deposited with Form 1 and the books.
7. Claiming section 10(50) for financial year 2025-26 income. The Finance Act, 2025 switched it off from assessment year 2026-27. Fix: compute that income under normal rules.
8. A foreign platform skipping GST registration for consumer sales. Section 14 of the IGST Act has no turnover threshold for OIDAR suppliers. Fix: register through Form GST REG-10 and file GSTR-5A.

Checklist

1. List every foreign digital vendor and platform your Indian company pays, with the country and the service.
2. Classify each payment as advertising, marketplace commission, subscription, software licence or other service.
3. Remove the equalisation levy step for payments after 31 Mar 2025 and after 31 Jul 2024 for e commerce.
4. Collect each vendor's TRC, Form 41 and no PE declaration for the tax year.
5. Decide whether each payment is chargeable in India, and deduct under section 393(2) where it is.
6. File Form 145, and Form 146 where needed, before each remittance.
7. Pay GST under reverse charge on imported services and claim the input tax credit.
8. Reconcile levy deposits for financial year 2024-25 and earlier with Form 1, and revise by 31 Mar 2027 if needed.
9. Review your own group's Indian revenue, if you are the foreign platform, against the INR 2 crore and 3 lakh user SEP tests.

For a review of your vendor payments or your platform's Indian position, email [email protected] with a list of payments by vendor and country.

Frequently Asked Questions

What is the equalisation levy in India?+

The equalisation levy was a tax on gross payments to non residents for digital services, in Chapter VIII of the Finance Act, 2016. It charged 6 percent on online advertising from 1 Jun 2016 and 2 percent on e commerce supply or services from 1 Apr 2020. Both levies have now ended.

Is the equalisation levy abolished in India?+

Yes. Section 163(3) of the Finance Act, 2016 now applies the 2 percent levy only to consideration before 1 Aug 2024 and the 6 percent levy only to consideration before 1 Apr 2025. The Income Tax Department states the provisions are not applicable from assessment year 2026-27.

When did the 6 percent equalisation levy end?+

The 6 percent levy on online advertising ended for consideration received or receivable on or after 1 Apr 2025. The Finance Act, 2025, which received assent on 29 Mar 2025, made the change. Payments for advertising before that date still carried the levy and the Form 1 statement.

When did the 2 percent equalisation levy end?+

The 2 percent levy on non resident e commerce operators ended for consideration on or after 1 Aug 2024, under the Finance (No. 2) Act, 2024. It had applied from 1 Apr 2020 to operators with Indian e commerce receipts of INR 2 crore or more a year.

Does an Indian company still deduct equalisation levy on online ads from a foreign platform?+

No. For consideration on or after 1 Apr 2025 there is no levy. The Indian company checks instead whether the payment is income chargeable in India and withholds under section 393(2) of the Income Tax Act, 2025 if it is. It still pays GST under reverse charge.

Is income that bore the levy still exempt under section 10(50)?+

Only for earlier years. The Finance Act, 2025 added a proviso to section 10(50) of the Income Tax Act, 1961. The exemption does not apply to income of financial year 2025-26 onwards, assessed in assessment year 2026-27 or later.

What tax applies to foreign digital companies after the equalisation levy?+

Income tax under section 9 of the Income Tax Act, 2025, through a business connection or significant economic presence, and GST on OIDAR services. A treaty resident with no permanent establishment in India pays no Indian income tax on business profits. A non treaty business with SEP pays tax on attributable income.

What are the significant economic presence thresholds in India?+

Rule 13 of the Income Tax Rules, 2026 sets them for section 9(9)(d) of the Income Tax Act, 2025. SEP exists when payments from India exceed INR 2 crore in a tax year. It also exists when the non resident systematically and continuously solicits business from, or interacts with, 3 lakh users in India.

Does GST apply to online advertising bought from abroad?+

Yes. Online advertising is an OIDAR service under section 2(17) of the IGST Act. A registered Indian business pays 18 percent IGST under reverse charge and claims credit. For unregistered buyers, the foreign supplier registers through Form GST REG-10 and pays the IGST.

Do I still need to file Form 1 for the equalisation levy?+

Only for past years. Form 1 was due by 30 June after each financial year in which the levy applied. A late or revised statement can be filed within two years from the end of that year, so financial year 2024-25 stays open to 31 Mar 2027.

Does the Income Tax Act, 2025 contain an equalisation levy?+

No. The levy was always in the Finance Act, 2016, not in an Income Tax Act, and it stopped before the Income Tax Act, 2025 came into force on 1 Apr 2026. The new Act taxes digital income through section 9, including SEP in section 9(9)(d).

Why did India abolish the equalisation levy?+

The record shows a trade dispute. USTR found the 2 percent levy discriminatory under Section 301 on 6 Jan 2021. India and the US agreed a transitional approach on 24 Nov 2021 and extended it to 30 Jun 2024. India ended the 2 percent levy from 1 Aug 2024 and the 6 percent levy from 1 Apr 2025.

Is TDS needed on payments to foreign digital companies now?+

Only on sums chargeable to tax in India. A treaty resident with no PE usually has no chargeable income, so no TDS applies once the payer holds its TRC and Form 41. A non treaty vendor with SEP has chargeable income, and the payer deducts under section 393(2).

What happens to equalisation levy disputes for past years?+

They continue. Chapter VIII of the Finance Act, 2016 still governs consideration before the cut off dates, so assessments, interest at 1 percent a month, penalties and appeals for those years proceed under it. The disallowance in section 40(a)(ib) of the 1961 Act also still applies to those years.

Sources

• Income Tax Department, Equalisation Levy, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/equalisation-levy-1
• Income Tax Department, Equalisation Levy web guide, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/equalisation-levy3
• Lok Sabha, Papers laid on the Table by the Ministry of Finance, listing S.O. 1904(E) and S.O. 1905(E) of 27 May 2016, Parliament Digital Library, https://eparlib.nic.in/bitstream/123456789/753398/1/8172.pdf
• Income Tax Department, Finance Act, 2016, section 163 (Equalisation Levy, abolished), https://www.incometaxindia.gov.in/w/section-163-84
• Income Tax Department, Finance Act, 2016, section 164 (definitions), https://www.incometaxindia.gov.in/w/section-164-82
• Finance Act, 2025 (Act No. 7 of 2025), section 6, copy hosted by the High Court of Tripura, https://thc.nic.in/Central%20Governmental%20Acts/Finance%20Act,%202025.pdf
• Income Tax Department, Section 9, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-9-1
• Income Tax Department, Rule 13, Income Tax Rules, 2026, https://www.incometaxindia.gov.in/w/rule-13-36
• Income Tax Department, Section 159, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-159-89
• Press Information Bureau, India's response to S 301 Report of U.S. on Equalisation Levy, 7 Jan 2021, https://pib.gov.in/pressreleaseshare.aspx?prid=1686865
• Press Information Bureau, India and USA agree on a transitional approach on Equalisation Levy 2020, 24 Nov 2021, https://www.pib.gov.in/PressReleasePage.aspx?PRID=1774692
• Press Information Bureau, India and USA extend the Transitional Approach on Equalisation Levy 2020 until June 30, 2024, 28 Jun 2024, https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2029336&reg=48&lang=2
• Office of the United States Trade Representative, USTR Welcomes Agreement with India on Digital Services Taxes, 24 Nov 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/november/ustr-welcomes-agreement-india-digital-services-taxes
• Central Board of Indirect Taxes and Customs, Notification No. 28/2023-Central Tax, 31 Jul 2023, https://www.gstcouncil.gov.in/sites/default/files/2024-05/gst-ct-28-2023.pdf
• Ministry of Finance, Budget 2026-2027 Speech, 1 Feb 2026, https://www.indiabudget.gov.in/doc/budget_speech.pdf