income tax
India's growing digital economy demands continued innovation in taxation policy. As operations expand across geographies, India has embarked on measures such as the Equalization Levy (EL), Significant Economic Presence (SEP), and strict Goods and Services Tax (GST) compliances to drive fair taxation. The big change arrives in 2025 when India will be phasing out the Equalization Levy to adopt the international tax standards set down by the OECD model.
India will withdraw the 6% Equalization Levy on digital advertising and the 2% EL on e-commerce from April and August 2025, respectively. This is in accordance with India's alignment towards OECD's Pillar One and Two tax solutions. Eliminating the EL will make compliance processes easier, lower the expense for foreign tech firms, and lower commerce tensions with America and the European Union.
With an eye to international tax standards, India will follow the OECD's 15% global minimum tax and rules of profit allocation. The action is, however, precipitated by the United States pulling out of the agreement in 2025, compelling India to rethink its accession and the pragmatic merits of the accord.
The expansion of Online Information and Data Access Retrieval (OIDAR) services scope to 2023 has gathered pace in 2025. Specific action against unregistered foreign digital platforms has been taken particularly against sectors like cryptocurrency, education technology (edtech), cloud software, artificial intelligence, and content distribution.
Companies that are classified as Electronic Commerce Operators (ECOs) are required to be registered under GST, to pay Tax Collected at Source (TCS), and comply with e-invoicing and document standards irrespective of their turnover ceilings.
The provisions of SEP only expand the tax obligations of non-resident digital companies further but do not overcome the compliance and transparency concerns raised by these provisions.
Tax administrations are now applying artificial intelligence and big data analysis to monitor transactions, identify tax evasion, and enhance the effectiveness of compliance.
To avoid the possibility of double taxation during the transition phase toward OECD norms, India and the United States have renewed their pact on the 2% Equalization Levy through June 30, 2025.
Startups and small and medium-sized businesses (SMEs) may be exposed to excessive compliance costs due to frequent regulatory changes and complex taxation laws.
Elimination of the Equalization Levy will lower compliance costs for Indian ad agencies but may simultaneously enhance global platform competition.
Digital businesses must explore the following best practices to stay compliant:
India's digital taxation system is destined for a significant change. With the potential abolition of the Equalization Levy, shifting the limelight to cross-border tax compliances, and enhancing GST enforcement, digital commerce is in for an exciting new chapter. Companies will have to remain compliant, utilize technological tools, and observe international trends in watchfulness in order to weather this changing paradigm successfully.