🌍 Equalisation Levy 2.0 — Status After OECD Pillar One & Pillar Two Implementation (2026 Guide)

The rapid growth of the digital economy has transformed how multinational technology companies generate revenue across borders. Businesses can now earn substantial income from countries without maintaining a physical presence there, creating challenges for traditional international tax rules.

To address this issue, India introduced the Equalisation Levy, often referred to as the "Google Tax," to tax certain digital transactions involving non-resident entities. Over time, the levy expanded significantly through the introduction of the 2% Equalisation Levy on e-commerce operators, commonly known as Equalisation Levy 2.0.

However, the global tax landscape is evolving with the OECD/G20 Inclusive Framework's Pillar One and Pillar Two initiatives. As countries move toward a coordinated international tax system, businesses are questioning whether Equalisation Levy 2.0 will continue, be modified, or eventually be withdrawn.

This article explains the current status of Equalisation Levy 2.0 in India, its interaction with OECD reforms, and what businesses should monitor in 2026.

📑 What Is Equalisation Levy?

Equalisation Levy is a separate levy introduced by India to tax certain digital transactions carried out by non-resident businesses.

Its primary objective was to ensure that digital companies earning significant revenue from Indian users contributed to the Indian tax base, even without a traditional permanent establishment in India.

📊 Evolution of Equalisation Levy

Phase 1 (2016)

A 6% Equalisation Levy was introduced on specified online advertising and digital advertising-related services provided by non-residents.

Phase 2 – Equalisation Levy 2.0 (2020)

India expanded the scope by introducing a 2% levy on the consideration received by certain non-resident e-commerce operators from specified e-commerce supplies or services.

This significantly broadened the reach of India's digital taxation framework.

🎯 Why Was Equalisation Levy Introduced?

The levy aimed to:

✔ Address digital economy taxation

✔ Reduce tax base erosion

✔ Create tax neutrality between resident and non-resident businesses

✔ Capture value created through digital presence in India

🌍 What Are OECD Pillar One & Pillar Two?

To modernize international tax rules, the OECD/G20 Inclusive Framework proposed two major reforms.

Pillar One

Designed to reallocate a portion of taxing rights over the profits of the largest multinational enterprises to market jurisdictions where customers are located, even without a physical presence.

Pillar Two

Introduces a coordinated global minimum tax framework for large multinational enterprise groups, aiming to reduce profit shifting to low-tax jurisdictions.

Together, these reforms seek greater consistency in international taxation.

📈 How Do These Reforms Affect Equalisation Levy?

One of the objectives of Pillar One is to reduce the need for unilateral digital services taxes and similar measures adopted by individual countries.

As a result, countries that introduced digital taxes—including Equalisation Levy-type measures—have been engaged in international discussions regarding their future treatment once Pillar One becomes fully operational.

However, implementation timelines and international consensus remain important factors.

📑 Current Status in India (2026)

As of 2026:

• The 2% Equalisation Levy on e-commerce operators has been abolished with effect from 1 August 2024 through amendments made in the Finance Act, 2024.
• The 6% Equalisation Levy on specified online advertising and related services continues to remain in force unless amended by future legislation.

The withdrawal of the 2% levy has been viewed as aligning India's digital tax policy more closely with ongoing international tax developments while discussions on Pillar One continue.

💻 Businesses Affected by the Earlier 2% Levy

The 2% Equalisation Levy had primarily affected certain:

✔ Global e-commerce platforms

✔ Online marketplaces

✔ Digital service providers

✔ Foreign technology companies

✔ International online retailers

Following its abolition, these entities should instead evaluate their tax obligations under the applicable provisions of Indian tax law and relevant international tax rules.

📊 Pillar Two and Indian Businesses

Pillar Two primarily affects large multinational enterprise (MNE) groups meeting prescribed revenue thresholds.

It focuses on:

✔ Global minimum taxation

✔ Effective tax rate calculations

✔ Additional reporting obligations

Most small and medium-sized Indian businesses are generally outside its direct scope, though multinational groups with Indian operations should closely monitor developments.

⚠️ Key Compliance Considerations

Businesses operating across borders should continue to monitor:

✔ Income-tax obligations

✔ Withholding tax provisions

✔ Permanent Establishment (PE) rules

✔ Transfer Pricing compliance

✔ Double Taxation Avoidance Agreements (DTAAs)

✔ OECD implementation developments

Digital taxation is increasingly interconnected with broader international tax reforms.

📑 Common Misconceptions

❌ "Equalisation Levy no longer exists."

Not entirely.

The 2% Equalisation Levy has been abolished, but the 6% Equalisation Levy on specified online advertising services continues.

❌ "Pillar One is fully implemented worldwide."

Implementation is still dependent on multilateral agreement and domestic legislation in participating jurisdictions.

❌ "Only technology companies need to monitor these changes."

Any multinational business with cross-border digital activities may need to evaluate the impact of evolving international tax rules.

📈 Best Practices for Multinational Businesses

✔ Review cross-border revenue models

✔ Monitor OECD and Indian tax developments

✔ Evaluate transfer pricing policies

✔ Assess treaty positions

✔ Maintain robust documentation

✔ Seek international tax advice before restructuring

🌏 Future Outlook

The future of digital taxation will likely be shaped by the pace of global implementation of OECD reforms.

Businesses should expect continued evolution in:

• International tax allocation rules
• Digital economy taxation
• Cross-border compliance obligations
• Global reporting requirements

Rather than relying on historical tax structures, multinational enterprises should periodically reassess their international tax positions.

🌏 Conclusion

India's digital tax regime has entered a new phase. While the 2% Equalisation Levy (Equalisation Levy 2.0) was abolished from 1 August 2024, the 6% Equalisation Levy on specified online advertising services continues to apply.

At the same time, OECD Pillar One and Pillar Two initiatives are reshaping the international tax landscape, although full implementation remains a work in progress.

Businesses engaged in cross-border digital transactions should continue monitoring legislative developments, reviewing tax structures, and ensuring compliance with evolving domestic and international tax requirements.

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Our Services Include:

✔ International Tax Advisory
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