income tax
Published on 4 April 2025
India's 2024 Digital Taxation Reforms: Key Changes & Compliance Guide
Introduction
India's digital taxation framework has experienced substantial revisions in 2024–2025 to better align with international standards and tackle trade concerns.
Equalisation Levy (2016–2024):
- Introduced in 2016, the 6% levy aimed at non-resident digital advertising revenue. Expanded in 2020 to include a 2% tax on e-commerce transactions, which was removed in 2024.
- Legal Basis: Finance Act, 2016
Significant Economic Presence (SEP):
- Foreign companies with revenue exceeding ₹2 crore from India or servicing over 300,000 Indian users are considered taxable, even without a physical presence.
- Legal Basis: Income Tax Act, 1961 (Section 9) [Circular No. 12/2023].
GST on Digital Services (OIDAR):
- An 18% GST applies to Online Information Database Access and Retrieval (OIDAR) services, such as streaming and cloud storage.
- Exemption Removed: As of October 1, 2023, services provided to governments or individuals are now taxable [CBIC Notification No. 4/2023].
Virtual Digital Assets (VDAs):
- Cryptocurrencies, NFTs, and other digital assets are categorized as taxable “assets” under the Income Tax Bill, 2025, incurring capital gains tax [Income Tax Bill, 2025].
Recent Amendments (2024–2025)
Equalisation Levy Abolished:
- The 6% levy on digital advertising is abolished from April 1, 2025, to alleviate trade tensions with the U.S. and conform to the OECD’s Pillar One framework [Finance Bill, 2025; Reuters].
- Impact: This change reduces costs for major players such as Google, Meta, and Amazon in India's ₹50,000 crore digital ad sector.
Enhanced GST Compliance for OIDAR:
- Foreign OIDAR providers are now required to:
- Register under GST.
- File Form GSTR-5A on a monthly basis.
- Appoint an Indian representative for compliance [CBIC Circular No. 11/2023].
OECD Pillar One Alignment:
- India has momentarily halted unilateral digital taxes to implement the global 15% minimum corporate tax under Pillar One, anticipated by 2026 [OECD Statement, 2024].
Income Tax Bill, 2025:
- Virtual Digital Assets are taxed as assets, meaning cryptocurrencies and NFTs will be treated as property or shares and are subject to capital gains tax.
- Compliance requirements will include stricter transaction reporting for cryptocurrency exchanges and wallets [Income Tax Bill, 2025].
Tax Implications for Businesses
| Sector | Tax Change | Action Required |
|---|---|---|
| Digital Ads | No 6% levy post-April 2025 | Update invoicing systems. |
| OIDAR Providers | 18% GST on all services | Register, file GSTR-5A, appoint a representative. |
| Crypto Platforms | VDAs classified as assets; capital gains apply | Implement transaction reporting. |
Avoiding Double Taxation:
- Take advantage of tax credits under India’s Double Taxation Avoidance Agreements (DTAA) with countries such as the U.S. and Singapore.
- Monitor developments related to OECD’s Pillar One for potential future adjustments.
Penalties for Non-Compliance:
- GST: Penalties can reach up to 100% for evasion.
- VDAs: Transactions incur a 1% TDS along with a 30% tax on gains.
Conclusion
India's reforms in digital taxation signify a strategic move towards global alignment while easing trade friction. The abolition of the Equalisation Levy benefits significant foreign technology companies, while enhanced GST and VDA regulations ensure revenue equity. Businesses must adapt to these simplified yet stricter compliance frameworks.