The Equalisation Levy and Income Tax in India: Overlap, Conflicts, and Legal Challenges in Digital Economy Taxation

India’s Equalisation Levy (EL), introduced in 2016 and broadened in 2020, generated substantial overlap and conflict with the Income Tax Act, 1961. At its core, the tension arose from the EL’s architecture as a gross-basis turnover tax applied to digital transactions, whereas the income tax framework operates on net profits. Structural exclusion of the EL from the Income Tax Act rendered Double Taxation Avoidance Agreement (DTAA) protections and foreign tax credits inapplicable, precipitating juridical double taxation for non-resident digital service providers. Additional frictions included questionable legislative competence, concerns over extra-territorial jurisdiction, procedural inadequacies under Article 14, and overlapping compliance obligations with Section 194-O TDS and GST. These cumulative tensions, compounded by international trade pressures—particularly a U.S. Section 301 investigation—culminated in the levy’s phased abolition in 2024–2025, transferring digital taxation to the Significant Economic Presence (SEP) framework within the Income Tax Act.