1st Aug 2024: Budget removes contentious tax on non-resident providers of digital services
The latest Indian budget has confirmed the scrapping of the 2% equalisation levy on digital companies, online education-providing firms, and software-as-a-service (SaaS) providers without a permanent physical presence in India. This is in recognition of the progress being made on OECD Pillar 1 negotiations on taking foreign earnings by digital service providers. The change came into effect from 1 August 2024 via the 2024 Finance Bill.
However, the 6% equalisation levy imposed on online advertising revenues remains in place.
April 2020: India has expanded its 2016 2% marketplace equalisation levy to non-resident marketplaces facilitating the sale of goods to consumers.
2016 Digital Services Tax equalisation levy
The levy on the digital economy was first introduced in the 2016 Finance Act at 6% as (effectively) a Digital Services Tax on non-resident providers of online advertising. It is structured as withholding tax – the India customer must remit 2% of the invoice direct to the tax authorities.
2020 expansion to e-commerce operators and facilitating marketplaces
From 1 April 2020, the levy was expanded to broader non-resident e-commerce sellers and marketplaces for B2C goods and digital services. There is an annual sales threshold of INR 20million (approx €230,000 or $270,000)
This included any of the following:
- Online sale of goods owned by the e-commerce operator
- Electronic services provided by the e-commerce operator
- Marketplace facilitating sale of goods for third-party sellers
Taxable sellers or facilitating marketplaces are responsible for charging and remitting the levy to the tax authorities on a quarterly basis.
India GST on e-commerce
Indian GST was introduced in 2017. India levies GST on digital services and e-commerce goods provided by non-resident or foreign providers and marketplaces. It also operates a 1% Tax Deducted at Source TDS on marketplaces processing sellers’ sales receipts since October 2020.
