As digital commerce reshapes the global economy, taxation has emerged as a thorny issue. The India-US bilateral trade negotiations signal not the end of digital taxation debates, but their transition into a more structured, negotiated and rule-based phase, writes Bipin Sapra
l What exactly was announced by the US?
AN INITIAL WHITE House fact-sheet amidst the ongoing India-US bilateral trade negotiations suggested that India would remove digital service taxes and commit to negotiating comprehensive digital trade rules addressing discriminatory practices and barriers. Shortly thereafter, references to removal of digital service taxes were dropped, and the focus shifted to negotiating robust digital trade disciplines between the two countries.
This change is significant as it indicates that while India is open to structured engagement on digital trade rules, it is not committing to permanently relinquish its sovereign taxing rights over digital economic activity. The emphasis appears to have moved from eliminating digital taxes to building rule-based digital trade governance through bilateral negotiations.
In other words, the conversation is evolving from whether digital activity should be taxed to how digital trade rules should be framed. India has already repealed the equalisation levy but continues to retain the Significant Economic Presence (SEP) framework.
l What is the WTO moratorium on electronic transmissions?
THE WTO MORATORIUM prevents member countries from imposing customs tariffs on digitally delivered products such as software, films, music and e-books. It currently stands extended until 2026. The US and several developed economies favour making it permanent arguing that tariff-free digital flows reduce costs, create certainty for businesses, and support the growth of the digital economy.
India, along with several developing countries, has taken a more cautious approach. India has called for clearer definitions of what constitutes “electronic transmissions,” as well as empirical assessments of revenue impact before any permanent commitment is made. The divide reflects deeper differences over development priorities, fiscal sovereignty and the future structure of digital trade.
l How the OECD framework fits into this
THE OECD’S INCLUSIVE framework aims to address the taxation challenges posed by multinational companies (MNC) through its Two-Pillar solution. Pillar One seeks to reallocate a share of residual profits of MNCs with global revenues above EUR 20 billion) to market jurisdictions where users and consumers are located. This is relevant for firms that generate significant revenue without a physical presence in a specific jurisdiction. Pillar Two introduces a global minimum effective tax rate of 15% for MNCs with revenues above EUR 750 million. If profits are taxed below this threshold in one jurisdiction, other jurisdictions can apply a top-up tax.
For India, the OECD framework offers a multilateral route to secure taxing rights over digital value generated in a large market, while avoiding unilateral measures that trigger trade disputes. The repeal of the equalisation levy aligns India more closely with this approach, though implementation of Pillar One is complex and politically sensitive.
l Impact on cross-border digital services
FOR GLOBAL DIGITAL platforms in India, the immediate environment appears more stable. The repeal of the equalisation levy reduces the risk of double taxation and trade retaliation. India’s adherence to the WTO moratorium ensures that digital transmissions are tariff-free for now. Alignment with the OECD norms signals willingness to work within multilateral norms. But the Significant Economic Presence regime also exists.
This underscores India’s commitment to taxing substantial digital engagement within its territory. MNCs that derive significant revenue or maintain extensive user bases in India can’t assume digital operations will remain outside the scope of domestic tax law. From a broader perspective, digital trade between India and the US is shaped by a layered architecture. Bilateral trade negotiations seek to establish digital trade disciplines while preserving fiscal sovereignty. The result is not deregulation, but creating a structured tax framework.
l What is the larger takeaway?
INDIA’S APPROACH REFLECTS a strategic balancing act. It has stepped back from unilateral turnover-based digital taxes (equalisation levy) that triggered trade friction, yet has not abandoned its claim to tax digital value generated within its borders. It supports global coordination but insists on preserving tax policy space for developing nations.
For the US, securing open digital trade flows remains a priority. For India, ensuring that its large digital market contributes fairly to domestic revenue remains equally important.
The India–US engagement signals not the end of digital taxation debates, but their transition into a more structured, negotiated and rule-based phase. The core question now is how to reconcile openness with sovereignty in a world where value is created everywhere but taxed somewhere.
The writer is partner and Indirect Tax Policy leader, EY India. With inputs from Samridhi Jain, tax professional, EY India