Finance Bill 2025: Government Proposes Elimination of 6% Equalisation Levy on Online Advertising

The central government has proposed abolishing the 6% equalisation levy on online advertising as part of the amendments to the Finance Bill 2025, according to sources familiar with the matter.

This move came after the 2% equalisation fee on e-commerce was lifted last year, which had been a point of contention between India and the United States. The United States has threatened to implement reciprocal tariffs beginning April 2, citing concerns over India’s digital tax policies.

“While this change may reduce tension in global trade relations, it remains to be seen whether this, combined with other diplomatic measures, will lead to a softening of the US’s stance on India’s digital tax policies,” according to a tax expert. He noted that the decision indicated a more flexible approach to global tax issues, which may help Indian enterprises operating in the digital sector.

The Finance Bill 2025 amendments contain 35 changes, one of which revises Section 9A, which controls the tax treatment of offshore fund managers in India, according to persons familiar with the situation who spoke with media on condition of anonymity.

The revision relaxes compliance requirements by eliminating the rule that no more than 5% of a fund’s assets be indirectly owned by Indian residents. This amendment makes regulatory compliance easier for offshore fund managers and restores the central government’s ability to adjust these conditions through notifications.

Another significant change relates to Section 143(1), which addresses the processing of income tax returns. A new subclause (iia) has been added, allowing tax authorities to adjust returns if irregularities are discovered while comparing the current year’s filing to the prior year’s data. This means that tax authorities will do year-over-year reconciliations, forcing taxpayers to be consistent in their filings to avoid scrutiny.

The amendments also cover search and seizure provisions. The Finance Act 2024 uses the word “total income” in cases of search and seizure, raising concerns that reported income may also be penalised. The Finance Bill 2025 resolves this by changing the word to “Total Undisclosed Income,” which ensures that only unreported earnings are targeted.

These amendments provide greater clarity in tax regulations and may increase India’s appeal as a destination for foreign investments, notably in the asset management industry.