Equalisation Levy (EL) was introduced in 2016 (Finance Act 2016) and expanded in 2020. It's India's mechanism to tax digital economy transactions that fall outside traditional income tax / DTAA frameworks. The levy applies to specified services provided by foreign companies to Indian residents.
Two EL regimes
| Levy | Rate | Applies to | Who pays |
|---|---|---|---|
| EL on online advertising | 6% | Specified online advertising / digital ad space provided by non-resident to Indian resident for business purpose | Indian payer withholds and deposits |
| EL on e-commerce supply | 2% (abolished from 1 August 2024) | Goods / services supplied by non-resident e-commerce operator to specified Indian persons | Non-resident e-commerce operator pays directly |
Note: the 2% EL on e-commerce supply was abolished effective 1 August 2024 as India implemented its OECD Pillar 1 framework. The 6% EL on online advertising continues.
The 6% EL on online advertising — operating mechanics
- Applies when Indian business pays for online advertising or provision of digital ad space to a non-resident.
- Examples: Indian business pays Google for AdWords, Meta for Facebook / Instagram ads, LinkedIn for advertising.
- Indian payer withholds 6% at the time of payment.
- Threshold — aggregate annual payment to any single non-resident must exceed ₹1 lakh.
- Deposit by 7th of next month via Challan 285.
- Annual return Form 1 by 30 June of next financial year.
EL compliance bundled in monthly filing
FastLegal's tax specialist tracks EL applicability per vendor invoice, withholds 6% on qualifying advertising payments to non-residents (Google, Meta, LinkedIn etc.), deposits via Challan 285, and files the annual Form 1 by 30 June. Captured in your monthly compliance summary.
Relationship with income tax
EL is not income tax — it's a separate levy. Importantly:
- Once EL is deducted on a payment, that payment is exempt from income tax in India (Section 10(50)).
- No DTAA benefit applies to EL — DTAAs only cover income tax.
- Non-resident recipient cannot claim Indian foreign tax credit for EL in their home country (most countries don't credit it).
- EL is fundamentally an Indian source-based levy outside the DTAA framework.
Operational considerations
- Most major platforms (Google, Meta, LinkedIn) factor EL into their billing for Indian customers — they invoice you the gross amount with EL flagged.
- Your Indian subsidiary self-deposits the 6% EL; you remit only the net to the foreign provider.
- Failure to deduct or deposit attracts interest at 1% per month plus penalty up to the amount of levy.
- Track EL spend per vendor — needed for the annual Form 1.
Pillar 1 / international tax context
OECD's Pillar 1 (Amount A) aims to reallocate taxing rights for large multinationals' digital revenues. India agreed to withdraw its unilateral measures (including the 2% e-commerce EL) once Pillar 1 is implemented. The 2% EL withdrawal in August 2024 was the first step. The 6% advertising EL may be withdrawn in a later phase.
For now, treat the 6% advertising EL as ongoing. Pillar 1's full implementation timeline remains uncertain.
Frequently asked questions
Does EL apply if our Indian subsidiary pays Google for cloud services (not advertising)?+
No — EL is specific to online advertising and digital ad space. Cloud services / SaaS / software payments are outside EL scope (they may attract RCM IGST and Section 195 TDS instead).
Can we set off EL deducted against income tax?+
No — EL is a separate levy, not income tax. They don't offset.
Are there exemptions for small payments?+
Aggregate annual threshold of ₹1 lakh per non-resident. Below that, no EL applies.
What about Pillar 2 (15% minimum tax)?+
Pillar 2 is a different framework — minimum effective tax rate for large multinational groups. Separate from EL. Applies to groups with annual consolidated revenue above €750M.
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