What Is the Equalisation Levy and Does It Still Apply to Indian Sellers?

The equalisation levy is a tax on the consideration paid for certain digital services supplied by non-residents, set out in Chapter VIII of the Finance Act, 2016. The Income Tax Department says it began with online advertisement services and was extended by the Finance Act, 2020 to e-commerce supply and services from 1 April 2020. The levy sat outside the Income-tax Act as a separate charge.

• Start date: The Central Government appointed 1 June 2016 as the date Chapter VIII came into force, as recorded in the notes to section 163.
• Online ads: Under section 165, a 6% levy applied to consideration for a specified service received by a non-resident from a resident carrying on business or profession, or from a non-resident with a permanent establishment in India.
• Specified service: Section 164(i) defines it as online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement, plus any service the Central Government notifies.
• E-commerce: A 2% levy applied to consideration received by a non-resident e-commerce operator for e-commerce supply or services made or facilitated from 1 April 2020 to 31 July 2024, according to the Income Tax Department.
• Income tax: Income chargeable to equalisation levy was exempt from income tax in the hands of the non-resident under section 10(50) of the Income-tax Act, 1961, as the Income Tax Department explains.
• Online: Section 164(f) defines "online" as a facility, service, right, benefit or access obtained through the internet or any other form of digital or telecommunication network.

For most Indian freelancers and exporters, the levy was a cost on buying digital advertising from abroad. Money that Indian sellers received from foreign clients was never the target. For the term used in the exclusions, see what is permanent establishment.

The equalisation levy applied to non-residents supplying online advertising or e-commerce services into India, with Indian business buyers deducting the 6% levy. Neither levy applies to consideration for periods from 1 April 2025. Section 163(3) now limits the Chapter to specified services provided before 1 April 2025 and e-commerce supplies made before 1 August 2024.

The equalisation levy worked through deduction at source for online advertising and through self-payment for e-commerce. An Indian business buying a specified service from a non-resident deducted 6% from the payment, deposited the amount and filed an annual statement, as the Income Tax Department describes. The steps below apply only to periods before 1 April 2025.

1. Check whether the service was online advertisement or digital advertising space bought from a non-resident, as defined in section 164(i).
2. Check the exclusions in section 165(2): a permanent establishment in India connected with the service, or total consideration to that non-resident in the previous year not exceeding Rs 1 lakh.
3. Deduct 6% of the consideration from the payment to the non-resident.
4. Deposit the deducted amount by the 7th day of the following month in Challan No. ITNS 285, according to the Income Tax Department.
5. File the statement of equalisation levy in Form 1 by 30 June after the end of the financial year, electronically under a digital signature or through EVC.
6. Keep invoices, challans and the Form 1 acknowledgement for any later notice, intimation or demand.

The equalisation levy deadlines depended on which levy applied. The 6% levy was deposited by the 7th of the month after deduction, and the 2% levy was paid quarterly. Both were reported in Form 1 by 30 June after the financial year, as the Income Tax Department sets out.

Missing the equalisation levy for a past period can still lead to interest, penalties and a disallowed expense. The Income Tax Department lists these consequences for a payer that failed to deduct or deposit, and for an operator that failed to pay. The levy ending in 2025 does not cancel dues for earlier periods.

• Own liability: A payer that failed to deduct the levy became liable to pay it.
• Disallowance: The ad expense could be disallowed under section 40(a)(ib) of the Income-tax Act, 1961 if the levy was not deducted, or not deposited by the return due date. It is allowed in the year the levy is later deducted and paid.
• Interest: Simple interest at 1% of the levy for every month or part of a month of delay.
• Non-deduction: A penalty equal to the levy the payer failed to deduct.
• Non-deposit: Rs 1,000 for each day of default for a deducted levy not deposited, capped at the unpaid amount.
• Operator default: An e-commerce operator that failed to pay faced a penalty equal to the levy not paid.
• No statement: Rs 100 per day if Form 1 is still not filed after the Assessing Officer's notice.

Deduct or pay the missing levy with interest, file a belated or revised Form 1 within the 2-year window, and keep the challan and acknowledgement. Any demand is served in Form No. 2, and an intimation after processing is treated as a notice of demand, according to the Income Tax Department. Check with a tax professional for open periods.

The equalisation levy was a flat percentage of the gross consideration, with no slabs. Say a resident agency paid a non-resident Rs 5,00,000 for online ads in FY 2023-24 and no exclusion applied. The levy was 6% of Rs 5,00,000, or Rs 30,000, so the agency paid Rs 4,70,000 abroad. If deposited three months late, interest was 1% of Rs 30,000 for 3 months, or Rs 900. These numbers are hypothetical.

• Still deducting: Some payers keep deducting 6% from ad payments made after 31 March 2025, though section 163(3) ends the levy for services provided from 1 April 2025.
• Seller confusion: Indian sellers sometimes assume they owed the 2% levy on marketplace sales. The non-resident operator paid it, and sales of goods owned by Indian residents were excluded.
• Export receipts: Freelancers sometimes think the levy applies to foreign client payments. It charged consideration received by non-residents, never an Indian resident's export income.
• Old periods: Assuming the repeal wipes out earlier dues. Deductions, deposits and Form 1 filings for periods before the end dates still count.
• Threshold: Applying the Rs 1 lakh threshold per invoice. It applied to the total paid to that non-resident in the previous year.
• Personal use: Deducting on ads bought for personal use. The levy applied only where the service was for business or profession.

Every rule, deadline and form on this page is linked to its official source, checked on the dates below.

1. Equalisation Levy (overview and sub-pages on online advertisement, e-commerce supply, due dates and statement), Note that provisions are not applicable from 01-04-2025; rates, exclusions, due dates, ITNS 285, Form 1, interest and penalties (checked 9 Oct 2026)
2. Finance Act, 2016, Section 163: Extent, commencement and application, Section 163(3) and proviso; notes: commencement 1 June 2016, substitution by Finance (No. 2) Act, 2024 w.r.e.f. 1-8-2024, insertion by Finance Act, 2025 w.e.f. 1-4-2025 (checked 9 Oct 2026)
3. Finance Act, 2016, Section 164: Definitions, Section 164(f) online; section 164(i) specified service (checked 9 Oct 2026)
4. Finance Act, 2016, Section 165: Charge of equalisation levy on specified services, Section 165(1) six per cent rate; section 165(2) exclusions (checked 9 Oct 2026)
5. Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 2024, Amendment of provisions related to Equalisation Levy (pages 56 to 57) (checked 9 Oct 2026)