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Stream/Area:
-
Subject:
-
Paper ID:
IJSREM68267
Volume:
10 |
10 |
Oct 2026
Pages:
1-5
Publication Frequency:
Monthly (12 issues per year)
License:International Journal of Scientific Research in Engineering and Management follows the Creative Commons Attribution 4.0 (CC BY 4.0) License, allowing free use and distribution with proper attribution.
SCHOOL OF LAW
SRM Institution of Science and Technology
India was among the first countries to tax digital businesses that earn money from Indian users without setting up shop in India. It tried two routes. One was the equalisation levy, a stand-alone tax on gross receipts. The other was “significant economic presence” (SEP), which stretches the business connection test inside income tax law itself. Ten years on, the picture looks very different. The 2% levy on e-commerce was withdrawn from 1 August 2024, the 6% levy on online advertising ended on 1 April 2025, and the SEP rule still sits uneasily with India’s tax treaties. This paper takes a doctrinal approach. It traces the design of both measures, tests them against treaty law and Supreme Court decisions on permanent establishments and royalties, and then places them next to the OECD two-pillar project, including the side-by-side package agreed on 5 January 2026. The paper argues that India’s unilateral tools worked better as bargaining chips than as revenue instruments, and that their withdrawal leaves a real gap in source-based taxation of digital business. It closes with five proposals: a treaty-based digital services clause, a pre-announced review date for any interim measure, clearer profit attribution rules, a considered decision on a domestic minimum tax, and better public data.
KEYWORDS
India’s early moves on the digital economy were bold, and in their time they were influential. The equalisation levy and SEP both responded to a real failure of the PE concept, a failure the Supreme Court’s own reading of that concept helps to explain. But the levy’s design drew foreign resistance, SEP’s design met the treaty wall, and the policy ended up exposed: the interim tools were retired before the permanent one was agreed. The way forward is less dramatic than the original levy and probably more durable. It lies in treaty work, in clearer attribution rules, in a deliberate view on the minimum tax and in better data. The multilateral picture is also moving, so any conclusion here is provisional and should be checked against the latest notifications and OECD releases.
[1] OECD, Addressing the Tax Challenges of the Digital Economy, Action 1 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project. Paris, France: OECD Publishing, 2015. [2] Central Board of Direct Taxes, Report of the Committee on Taxation of E-commerce, Ministry of Finance, Government of India, Feb. 2016. [3] Finance Act, 2016 (India), Ch. VIII (Equalisation Levy). [4] Finance Act, 2020 (India), provisions on the equalisation levy on e-commerce supply or services and on significant economic presence. [5] BDO India, “Direct tax alert: Thresholds for significant economic presence in India notified.” [Online]. Available: https://bdo.in/en-gb/insights/alerts-updates/direct-tax-alert-thresholds-for-significant-economic-presence-in-india-notified [6] Vision IAS, “India plans to eliminate the 6% equalization levy on online advertising services,” Mar. 26, 2025. [Online]. Available: https://visionias.in/current-affairs/news-today/2025-03-26/economy/india-plans-to-eliminate-the-6-equalization-levy-on-online-advertising-services [7] MediaNama, “What really drove India to abandon its digital advertising levy,” Mar. 2025. [Online]. Available:https://www.medianama.com/2025/03/223-what-really-drove-india-to-abandon-its-digital-advertising-levy/ [8] YourStory, “Equalisation levy on online advertisements to be abolished from April 1,” Mar. 2025. [Online]. Available: https://yourstory.com/2025/03/equalisation-levy-online-advertisements-abolished-google-meta-x-ads [9] Finance Act, 2025 (India), amending Ch. VIII of the Finance Act, 2016. [10] “Govt to abolish ‘Google tax’ amid Trump’s tariff threat,” Deccan Herald, Mar. 26, 2025. [Online]. Available:https://www.deccanherald.com/amp/story/busine ss/govt-to-abolish-google-tax-amid-trumps-tariff-threat-3462385
Publication Date
10/24/2026
Peer Review Type
Double-Blind Peer Review
Review Rounds: 2
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The authors declare no conflict of interest related to this research work.
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