India Scraps Google Tax, Signals Trade Deal Intent

Why in the News ?

The Indian government has scrapped the equalisation levy on digital ads, easing taxation on global tech firms like Google and Meta. The move aligns with U.S. trade negotiations, amid pressure to reduce tariffs before the April 2 deadline.

India Scraps Google Tax, Signals Trade Deal Intent

Equalisation Levy and Its Impact:

  • Introduced in 2016, the equalisation levy imposed a 6% tax on digital ad payments to foreign companies exceeding ₹1 lakh.
  • Affected major tech giants like Google and Meta, which dominate India’s digital ad market.
  • In 2020, a 2% levy was imposed on e-commerce platforms offering digital services.
  • The S. Trade Representative (USTR) investigated this tax, terming it discriminatory and restrictive to U.S. commerce in 2021.
  • India removed the 2% levy on August 1, 2024, and has now scrapped the advertising levy as part of the Finance Bill 2025.

Global Taxation and OECD’s Role

  • The tax aimed to ensure multinational digital firms paid fair taxes in market countries.
  • The OECD’s Pillar One project sought a global consensus on taxing the digital economy.
  • Some experts saw India’s equalisation levy as an imperfect and unilateral
  • The tax generated ₹4,000 crore, with Bengaluru contributing a major share.

Strategic Trade Moves with the U.S.

  • The decision comes amid S. pressure to reduce tariffs before an April 2 deadline for reciprocal duties.
  • India recently cut tariffs on high-end cars and motorcycles exported by the S.
  • A S. trade delegation is in India to discuss a bilateral trade agreement.
  • These steps signal India’s pragmatic approach in engaging with the S. administration.