Gig And Digital Economy May Catch Fancy Of Taxmen

India’s gig and digital economy has been a roaring success, reshaping employment and redefining commerce. With 7.7 million gig workers today and projections of 23.5 million by 2030, this sector is no longer a sideshow—it is central to India’s labour market. 

The broader digital economy is set to reach $455 billion by the end of 2024, reflecting the rapid digitisation of business and services.

With great growth comes greater scrutiny. 

The fiscal year 2025-26 budget will test the government’s ability to balance tax expansion with innovation. 

As policymakers seek fresh revenue sources while supporting economic recovery, taxation on gig workers, digital platforms, and fintech services will likely be in focus. 

The challenge is whether India can build a fair taxation framework that fosters long-term growth or risks burdening a sector that thrives on flexibility and accessibility.

India’s gig workforce—delivery executives, ride-hailing drivers, freelancers, and digital content creators—operates largely informally. 

While platforms deduct goods and services tax on their services, gig workers only pay income tax if earnings exceed ₹250,000 annually. This results in two key issues: low tax compliance and lack of financial security. Many either underreport income or pay taxes without employment benefits.

A presumptive tax scheme, allowing gig workers earning below a threshold to pay a fixed percentage of income as tax, could simplify compliance—similar to tax provisions for small businesses. 

At the same time, platforms offering formal contracts, social security, or insurance could receive tax incentives, encouraging better employment practices while preserving the sector’s flexibility.

The digital economy faces its own tax complexities. 

E-commerce platforms already collect a 1% tax at source on transactions, while food delivery services are taxed at 5%. 

But software-as-a-service firms, fintech startups, and subscription-based platforms pay 18%, creating inconsistencies across digital businesses. Simplifying tax classifications could reduce litigation, improve compliance, and enhance India’s ease of doing business.

The Equalisation Levy, currently at 6%, on foreign digital firms, could also see changes. 

While the tax applies to platforms like Google, Meta, and Amazon, the government may expand its scope or align it with the Organisation for Economic Co-operation and Development’s global tax framework. 

Any change would have a ripple effect, increasing operational costs for digital platforms and indirectly affecting gig worker earnings.

Social Security

India’s gig economy also lacks structured social security. The Code on Social Security, 2020, aimed to provide benefits like retirement savings, health insurance, and paid leave for gig workers, but implementation has been slow, and funding remains unclear. One proposal is a “social security tax” on gig platforms—either a flat fee or a percentage of revenue—to finance these benefits. 

While this would provide long-overdue protections, excessive taxation could reduce gig work opportunities or raise service costs for consumers.

Digital payments have been the backbone of India’s tech-driven economy, with Unified Payments Interface crossing 13 billion transactions in fiscal year 2023-24. However, the zero merchant discount rate policy prevents banks from charging businesses for UPI transactions, straining financial institutions.

A new proposal to impose an 18% goods and services tax on payment aggregators handling transactions below ₹2,000 could add further pressure. Smaller merchants could face higher costs, potentially slowing digital payment adoption. If the government wants digital payments to continue thriving, it may need to reconsider such tax measures.

For startups, taxation on employee stock ownership plans remains an unresolved issue. While the last budget abolished the angel tax, many startups still struggle with ambiguous tax treatment of stock-based compensation. Given that stock options are a key tool for talent retention, clearer regulations could strengthen India’s startup ecosystem.

The fiscal year 2025-26 budget presents an opportunity to create a fair and forward-looking tax framework for India’s gig and digital economy. Excessive taxation or cumbersome compliance measures could stifle innovation, push transactions into the informal sector, and deter investment. But well-calibrated tax simplifications, compliance incentives, and structured social security measures could ensure sustainable growth while securing worker benefits. 

This budget will be a defining moment—one that could either nurture India’s digital economy or impose unnecessary burdens on one of its fastest-growing sectors.