Taxation Of Digital Economy In India: Challenges And Emerging Framework
- IJLLR Journal
- May 1
- 2 min read
Rohan Rawat, Uttaranchal University, Law College Dehradun
Dr. Bhawna Arora, Associate Professor, Law College Dehradun
Introduction:
India's digital taxation approach has changed substantially since 2016. The government introduced a 6% equalization levy on online advertising services, followed by a 2% tax on foreign e-commerce businesses. This groundbreaking approach targets companies that generate substantial revenue from Indian consumers without having a physical presence in the country.
The digital tax system in India now covers multiple mechanisms. Companies must comply with Significant Economic Presence regulations when their revenue exceeds INR 20 million or they have 300,000 users in India. Digital services also attract an 18% Goods and Services Tax, which affects major platforms like Netflix and Amazon. These measures want to capture the growing digital economy, but they face several challenges. The biggest problems include enforcement difficulties and potential double taxation risks.
In this piece, we'll get into India's digital tax framework and analyze significant case laws. We'll compare it with global approaches to digital taxation. The text also gives an explanation of how India deals with the complexities of taxing the digital economy, along with the current system's challenges and limitations.
Abstract: Understanding the Digital Tax Landscape in India
The Indian digital economy grows faster than ever, and experts predict it could exceed USD 1 trillion by 2022 and make up half of the total economy by 2030 [1]. Traditional taxation models no longer work for businesses without physical presence, which led to major changes in India's tax framework.
India uses several methods to tax digital transactions. The government introduced a 6% equalization levy (EL) on online advertisements in 2016 and extended it to include 2% on e- commerce supplies in 2020 [2]. Recent changes show a new direction as India plans to remove the 6% levy on digital advertisement services from April 1, 2025, and the 2% e-commerce supply tax from August 1, 2024 [3].
