India to scrap 6% tax on online ads to ease US trade tensions – Brand Wagon News

The Indian government has proposed scrapping the 6% equalisation levy on online advertising services provided by offshore technology giants such as Google, Meta, and Amazon. The move follows the earlier removal of a 2% digital services tax on e-commerce transactions last year, which had strained trade relations between India and the United States.

Experts believe this step signals India’s intent to ease tensions with Washington and mitigate potential trade retaliations. “The removal of the 6% levy on online advertising aligns with India’s broader strategy to create a more favourable tax environment while addressing US concerns,” Amit Maheshwari, tax partner at AKM Global, said. He noted that while the previous 2% tax faced more criticism, India’s latest move could contribute to a diplomatic resolution.

The United States had launched an investigation into digital service taxes in 2020, arguing that levies imposed by India, Austria, Italy, Spain, Turkey, and the UK unfairly targeted American tech firms. Washington contended that these taxes violated international taxation norms and disproportionately impacted US digital companies, including Apple, Google, Amazon, and Facebook.

Industry experts have long viewed the equalisation levy as an interim measure until a global taxation framework is established. “The equalisation levy was always a temporary solution to bring digital transactions under taxation until a multilateral agreement was reached. Its removal brings much-needed certainty to businesses and addresses international concerns over India’s unilateral tax measures,” Vishwas Panjiar, a partner at Nangia Andersen LLP, added.

In addition to tax reforms, the government has introduced amendments in key sections of tax law concerning the assessment of undisclosed income found during searches and seizures. Specifically, the term ‘Total Income’ has been replaced with ‘Total Undisclosed Income’ in sections 113, 132, and 158. The revision aims to clarify that penalties and enforcement actions will focus only on previously unreported income rather than the entirety of a taxpayer’s declared earnings.

“This change is crucial,” said Maheshwari. “Earlier, the term ‘Total Income’ created ambiguity, leading to concerns that even disclosed earnings could be subjected to punitive measures. By defining ‘Total Undisclosed Income,’ the government provides clarity and ensures that only unreported wealth is penalised.”

Further amendments have been made to Section 143(1), introducing a new provision that allows tax authorities to reconcile a taxpayer’s income with previous returns to identify inconsistencies. This adjustment is expected to strengthen compliance and streamline tax assessments. In simple terms, India is getting rid of a tax on online advertising services provided by big foreign tech companies to Indian businesses with the view of improving diplomatic relations with the US and making the tax system clearer.

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