TDS vs. Equalisation Levy: What's Changed

Both versions of the Equalisation Levy — the 6% digital-ads levy and the 2% e-commerce levy — are fully abolished, effective 1 April 2025. Income-tax TDS under Section 393(2) is the only remaining withholding framework for digital cross-border payments.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

N/A — levy abolished; TDS analysis applies independently

Section & code

Section 393(2) is now the sole relevant framework

Forms typically needed:

Form 15CA, as applicable to the underlying payment

A brief history of the Equalisation Levy

The Equalisation Levy was introduced in two phases: a 6% levy in 2016 on specified digital advertising services paid to non-residents, and a 2% levy in 2020 ("EL 2.0") on e-commerce supply/services provided by non-resident e-commerce operators to Indian customers. These were designed as a stopgap measure to tax the digital economy's presence in India before international consensus (the OECD's Pillar One framework) on taxing digital businesses could be finalized.

The 2% e-commerce levy was withdrawn earlier, by Finance Act 2024, and the remaining 6% digital-advertising levy was fully abolished with effect from 1 April 2025 — meaning both versions of the Equalisation Levy are now entirely gone from the Indian tax framework. This is a confirmed, settled position, not a proposal or pending change.

Why the levy existed alongside, not instead of, TDS

A common misconception was that the Equalisation Levy was simply 'the TDS for foreign digital companies' — it wasn't. It was a separate, additional levy, specifically targeting categories of digital payment (advertising, e-commerce) that often escaped ordinary income-tax TDS because the foreign platforms involved typically had no Indian PE or business connection under the ordinary rules. The levy filled that specific gap; it never replaced or overrode the ordinary Section 393(2) analysis for other categories of digital payment.

What abolition actually changes going forward

With both levies gone, any digital payment that previously would have triggered EL 1.0 or EL 2.0 — but that didn't independently create Indian PE/business connection for ordinary income-tax purposes — is now simply not subject to any withholding at all. Payments that would have been taxable under ordinary Section 393(2) rules regardless (a payment classified as FTS, royalty, or attributable to a genuine Indian PE) are unaffected by the levy's abolition, since that separate analysis always governed those payments independently.

Practical clean-up steps for businesses that were deducting the levy

Stop any automated or manual Equalisation Levy deduction process for payments on or after 1 April 2025.
Reassess affected foreign digital-services payments purely under the ordinary Section 393(2) business-connection/PE and classification framework.
Update vendor contracts, invoicing templates, and internal compliance checklists that still reference the levy.
Retain historical Equalisation Levy compliance records for periods before abolition, since past filings remain subject to review.

Worked example

A digital marketing agency's payment to a foreign ad-tech platform

An Indian agency pays a foreign ad-tech platform ₹5,00,000 for programmatic advertising services in March 2025 and again in May 2025. The March payment (before 1 April 2025) was subject to the 6% Equalisation Levy, ₹30,000, in addition to any separately applicable income-tax TDS. The May payment (after abolition) has no Equalisation Levy at all — only the ordinary Section 393(2) analysis applies, which in this case (a self-service ad platform with no Indian PE) results in NIL TDS as well.

Common mistakes & litigation traps

Continuing to deduct either version of the levy after abolition

Both the 6% and 2% Equalisation Levy are gone — any system still calculating either is operating on outdated rules and should be corrected immediately.

Assuming abolition means all digital payments are now tax-free

The levy's removal doesn't exempt payments that were always independently taxable under ordinary Section 393(2) rules (like FTS, royalty, or PE-attributable income) — those remain subject to TDS regardless of the levy's history.

Not distinguishing pre- and post-abolition periods in historical filings

Payments made before 1 April 2025 remain subject to the levy rules that applied at the time — don't retroactively apply post-abolition treatment to historical transactions under review.