India’s negotiations with the US over digital taxation have reached a critical stage, with India set to abolish its high-profile 6% equalisation levy on online advertisements from April 1, 2025. This historic shift is motivated by US pressure on digital tariffs and is shaping broader trade relations between the two countries.

Key Developments

• Abolition of Equalisation Levy: The Indian government has passed amendments to the Finance Bill, 2025, which include scrapping the 6% equalisation levy (EL) on online ads by foreign digital companies. The move is designed to alleviate US trade concerns and improve market access for US tech giants like Google, Meta, and Amazon.
• US Pressure and Stance: The US has described India’s equalisation levy as discriminatory, arguing that it targets US companies while exempting domestic ones. US negotiators are now pushing India to commit not to reintroduce similar digital taxes, a point viewed in India as a unilateral and problematic obligation.
• Export Significance: India exports significant digital services to the US, particularly in the IT sector. The US, in turn, has been lobbying heavily against digital service taxes in India.
• Negotiation Risks: Indian legal and trade experts fear that accepting one-sided US demands over digital taxation could set a precedent, complicating future negotiations with other global partners and raising concerns about undermining India’s sovereign right to tax foreign firms.
• Geopolitical and Economic Context: The discussions occur alongside broader trade negotiations involving market access for goods and unresolved issues in agriculture and autos, which are vital sectors for Indian job creation.
• Next Steps: A US trade delegation is scheduled to visit India in August 2025 for further discussions, highlighting ongoing efforts to reach an interim agreement before the next round of US trade sanctions could potentially be imposed.

Key Data Table

Implications for Bilateral Relations

• Trade Diplomacy: Scrapping the digital tax is expected to reduce trade friction and foster greater collaboration in technology and innovation sectors. It may also pave the way for progress in broader trade negotiations, potentially leading to increased bilateral trade and investment.
• Sovereignty and Precedent: India’s resistance to accepting binding commitments on future digital taxation signals its intent to preserve sovereign rights and negotiate future trade issues on equitable terms.
• Global Context: The India-US digital tax episode highlights similar tensions worldwide, as economies wrestle with taxing digital services while balancing market access and national interests.

India’s response to US demands, and how the two countries resolve these digital taxation issues, will influence global policy trends and the shape of bilateral trade for years to come.