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India’s lower house of parliament has passed the 2025 budget, making a pivotal change by removing the equalization levy (often referred to as the “Google Tax”), which was first introduced in 2016. This tax required non-resident companies to pay a 6% levy on earnings derived from digital advertising in India. In the previous financial year, it generated INR 3,343 Cr ($390 million) for the Indian government.
Finance Minister Nirmala Sitharaman announced the removal of the levy on March 25, 2025, citing the need to address uncertainty in international economic conditions. While Sitharaman didn’t elaborate on the specific reasons, it is widely believed that India’s decision is aimed at avoiding potential US tariffs on Indian goods and services, particularly those related to tech exports.
This move comes amid ongoing trade tensions with the Trump administration, which has previously warned that countries taxing US tech companies could face reciprocal tariffs. As India aims to boost its electronics manufacturing sector, avoiding US tariffs on Indian-made goods is a strategic priority.
In addition to the digital ads levy, India had already dropped a 2% equalization levy on foreign e-commerce companies in 2024, citing its complexity and the burden on businesses. The elimination of these taxes aligns with India’s adoption of the OECD global minimum tax plan, designed to ensure tech giants pay taxes in the jurisdictions where they generate revenue.
Despite the removal of the digital ads tax, the timing of the decision remains significant, as President Trump is expected to make an announcement on tariffs by April 2, 2025. There may be exemptions for countries that make such adjustments, which could have spared India further trade friction with the US.
India’s move to drop both the e-commerce and digital ads levies is seen as a way to ensure its trade relations remain stable, especially with the US. However, it also means India may lose out on significant tax revenue that was initially aimed at curbing tax avoidance by global tech companies.
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