Tax · Free tool
Equalisation Levy
Section 165 (digital ads) — 6% on payments > ₹1L/FY to non-resident foreign companies for online ads. Section 165A (e-commerce) — 2% — abolished from 1 Aug 2024.
Section 165 — applies to resident payers when buying ads from foreign cos (Google, Meta etc) above ₹1 lakh / FY.
How the levy works
Equalisation Levy is not part of the Income-tax Act — it sits in Chapter VIII of Finance Act 2016. Section 165 covers online advertisement services from non-resident providers: if you (an Indian business or professional) pay a foreign firm like Google Ireland, Meta or LinkedIn more than ₹1 lakh in a FY for ads, you must deduct 6% before remitting, deposit it by the 7th of the next month, and file Form 1 annually. The provider gets the income tax-free in India (section 10(50)) to avoid double tax.
Worked example
A Delhi D2C brand spends ₹12 lakh on Google Ads (Google Ireland is the billing entity) in FY 2025-26. Equalisation Levy = 6% × 12,00,000 = ₹72,000. The brand pays Google ₹11,28,000 (net) and deposits ₹72,000 with the government using challan ITNS 285 by the 7th of each following month. The full ₹12 lakh is still claimed as a business expense; the ₹72,000 levy is also deductible. The earlier 2% e-commerce equalisation levy on foreign e-commerce platforms (e.g. Amazon Inc., Booking.com) was withdrawn from 1 Aug 2024 to align with the OECD Pillar 1 framework.
When to use this
- Performance-marketing agencies and D2C founders running Google / Meta / LinkedIn / X ads
- SaaS firms paying for foreign ad networks (TikTok Ads, Reddit Ads)
- Auditors checking whether 6% has been deducted on every foreign-ad invoice above the threshold
- CFOs reconciling Form 1 (annual EL return) with TDS Form 26Q where overlap exists
Related: Form 15CA / 15CB — EL is separate from TDS, but the foreign remittance forms still need to be filed.
FAQ
Why is the e-commerce levy abolished?
Pillar Two of OECD's global tax reform replaces unilateral digital taxes. India committed to phasing out the 2% levy as Pillar Two implementation progresses. Effective 1 Aug 2024.
Is digital ad levy disallowable as expense?
Yes — section 40(a)(ib): if you don't deduct + deposit the 6% levy, the entire ad expense is disallowed.
Indian-resident-to-Indian-resident ads?
No equalisation levy. Section 165 only applies when payee is non-resident foreign company. Domestic Google India / Meta India ads are normal vendor payments.