India to Withdraw 2% Equalisation Levy on Overseas E-commerce by 2024

The government has decided to withdraw the 2 per cent equalisation levy, also known as the digital tax, on overseas e-commerce supplies. This change will take effect from August 1, 2024. Finance Minister Nirmala Sitharaman announced this during a post-budget briefing, highlighting ongoing negotiations on the global tax framework, specifically Pillar 1 and Pillar 2.

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Presenting the Budget for 2024-25 in the Lok Sabha, Sitharaman revealed that the standard deduction for salaried employees would increase to Rs 75,000 from Rs 50,000 under the new income tax regime in FY25. Additionally, the government plans to raise the deduction limit for employers' contributions to the National Pension System (NPS) from 10 per cent to 14 per cent.

Global Tax Framework

Pillar One focuses on reallocating additional profit shares to market jurisdictions. Pillar Two involves a minimum tax and a subject-to-tax rule. The Organisation for Economic Co-operation and Development (OECD) reported that a global minimum tax of 15 per cent will be implemented next year. By 2025, nearly 90 per cent of multinational corporations (MNCs) with revenues exceeding 750 million euros will be subject to this levy in every country where they operate.

In light of these developments, Sitharaman stated that continuing with the Equalisation Levy would not be feasible. The decision aligns with the interests of the ongoing negotiations on the Pillar 1 and Pillar 2 tax framework.

Benefits for Salaried Employees

The finance minister also proposed an increase in tax deductions on family pensions for pensioners, raising it from Rs 15,000 to Rs 25,000. These changes are expected to result in annual tax savings of up to Rs 17,500 for salaried employees under the new tax regime.

The OECD had informed G20 finance ministers in July last year about these upcoming changes. The global minimum tax aims to ensure that MNCs pay a fair share of taxes in every country they operate in.

Sitharaman's announcements reflect the government's efforts to align with international tax standards while providing relief to domestic taxpayers. The withdrawal of the digital tax and adjustments in income tax deductions are part of these broader reforms.

The government's decision is seen as a move towards harmonising India's tax policies with global norms. It also aims to provide clarity and predictability for businesses operating internationally.

These measures are expected to benefit both multinational corporations and domestic taxpayers by simplifying compliance and reducing tax burdens. The changes underscore India's commitment to participating in global tax reforms while supporting its citizens through targeted fiscal policies.