Equalisation Levy 2.0 on Digital Ads
As Indian AI firms, SaaS companies, and e-commerce players increasingly depend on global digital platforms for advertising and marketing, Equalisation Levy 2.0 has become an unavoidable cost consideration.
Introduced in 2020 and expanded in Budget 2021, Equalisation Levy now affects a wide range of cross-border digital transactions.
This blog explains how Equalisation Levy 2.0 works in 2025, how it impacts digital ad spends, and practical cost planning strategies for Indian AI companies.
Legal Reference
- Finance Act, 2016: Introduced Equalisation Levy at 6%
- Finance Act, 2020: Introduced Equalisation Levy 2.0 at 2%
- Section 165, Section 165A, Income Tax Act, 1961
What is Equalisation Levy 2.0?
It applies a 2% tax on the gross amount of consideration received by non-resident digital companies from:
- Online sales of goods
- Online provision of services
- Digital advertising services
- E-commerce supply or facilitation
Applies even if the seller or buyer is outside India but the user or target market is in India.
Key Differences: Equalisation Levy 1.0 vs 2.0
| Feature | 1.0 | 2.0 |
|---|---|---|
| Introduced | 2016 | 2020 |
| Rate | 6% | 2% |
| Applies To | Online advertising only | Online sale of goods and services |
| Taxpayer | Indian resident (deductor) | Non-resident e-commerce operator |
| Form | Form 1 | Form 1 (EL 2.0 reporting) |
When Does Equalisation Levy Apply for AI Firms?
- Running Google Ads, Facebook Ads, LinkedIn marketing targeting Indian users
- Paying Amazon Web Services (AWS) for India-based services (case-specific)
- Using foreign SaaS or platforms billing from outside India
- Selling AI solutions through foreign marketplaces to Indian customers
Practical Example
Company XYZ Pvt Ltd (AI-based SaaS):
- Spends ₹50 lakh per year on Google Ads targeting Indian users
- Google Ireland Limited invoices them
Since Google Ireland is a non-resident with a user base in India, Equalisation Levy 2.0 is applicable at 2%.
Effective cost increase = ₹1 lakh (2% of ₹50 lakh)
Google usually factors this into ad pricing or invoices separately, depending on contractual terms.
Compliance Responsibilities
- Indian payer (buyer) does not deduct Equalisation Levy 2.0.
- Non-resident service provider is supposed to pay it directly.
- However, Indian companies must factor this cost into budgeting because it inflates service pricing indirectly.
- Non-payment by service provider does not trigger direct liability on Indian entity, but foreign vendors may adjust service costs.
Cost Planning Tips for AI and SaaS Companies
- Negotiate net-of-tax contracts wherever possible with foreign vendors
- Identify services where Equalisation Levy 2.0 applies clearly (advertising, facilitation, marketplaces)
- Factor additional 2% in digital marketing budgets
- Explore India-registered versions of platforms (Google India, AWS India) to avoid exposure
- Track EL reporting trends in Form 26AS/AIS (may indirectly impact vendor risk assessment)
Risks if Ignored
- Increased pricing from vendors without prior notice
- Mismatch in budgeting digital ad spends
- Higher tax scrutiny if excessive foreign digital payments appear without TDS/EL remarks
Conclusion
Equalisation Levy 2.0 is now a permanent cost element for any Indian business relying on cross-border digital services.
AI companies and SaaS start-ups should proactively budget for it, renegotiate contracts if possible, and track foreign service invoices closely to manage advertising and operational costs.
Call to Action and Disclaimer
Need help understanding how Equalisation Levy affects your SaaS or AI company?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for educational purposes only and does not substitute personalized tax advice.
Frequently Asked Questions
1. Does Equalisation Levy apply if payment is made to Google India?
No. Equalisation Levy 2.0 applies only when the service provider is a non-resident.
2. Who is responsible for paying Equalisation Levy 2.0?
The non-resident service provider is responsible under EL 2.0 rules.
3. Does it apply to SaaS subscriptions?
Only if the SaaS platform facilitates sales or services targeting Indian users.
4. Is GST applicable along with Equalisation Levy?
Both may apply separately, depending on the nature of service.
5. Can I claim Equalisation Levy paid as tax credit?
No. EL 2.0 is not available as tax credit in India.