What Happened
- The US revised its interim trade deal factsheet with India, making two significant changes: removing pulses from the list of agricultural products eligible for tariff reductions and dropping the claim that India would remove its digital services tax.
- The language on India's $500 billion purchase plan was softened from "committed" to "intends," and "agricultural" was removed from the category list (retaining energy, ICT, coal, and other products).
- The original factsheet had stated India "will remove its digital services taxes" and negotiate digital trade rules; the revised version retains only the commitment to negotiate digital trade rules.
- The revisions were made after India flagged that the factsheet overstated the terms agreed upon in the India-US Joint Statement of February 6, 2026.
Static Topic Bridges
India's Equalisation Levy: History and Abolition
India's Equalisation Levy was a unilateral digital tax introduced to capture revenue from the digital economy activities of non-resident entities operating in India without a physical presence. It was commonly called the "Google Tax" and was a significant irritant in India-US trade relations, leading the US to initiate a Section 301 investigation in 2020.
- 2016 (Finance Act, 2016, Chapter VIII): India introduced a 6% Equalisation Levy on payments exceeding Rs 1 lakh per year to non-resident entities for online advertisement services
- April 1, 2020 (Finance Act, 2020): Expanded to a 2% levy on non-resident e-commerce operators facilitating digital sales of goods and services exceeding Rs 2 crore annually
- June 2, 2020: US launched Section 301 investigation into India's digital services tax under the Trade Act of 1974
- November 2021: India and the US agreed to a transitional approach -- India would keep the levy but credit it against future obligations under the OECD Pillar One framework
- August 1, 2024: India abolished the 2% e-commerce Equalisation Levy
- April 1, 2025: India scrapped the 6% online advertisement Equalisation Levy through Finance Bill 2025
- Both abolitions were linked to India's participation in the OECD/G20 Inclusive Framework's two-pillar solution for international taxation of the digital economy
Connection to this news: The original White House factsheet's claim that India would "remove its digital services tax" as part of the trade deal was misleading because India had already abolished both components of the Equalisation Levy before the deal -- the 2% levy in August 2024 and the 6% levy in April 2025. The revised factsheet dropped this claim, removing a false attribution of credit.
OECD/G20 Two-Pillar Framework for International Taxation
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) developed a two-pillar solution to address tax challenges arising from the digitalisation of the economy. This framework directly influenced India's decision to repeal its Equalisation Levy, and it represents the multilateral alternative to unilateral digital services taxes imposed by individual countries.
- Pillar One (Amount A): Reallocates taxing rights over a share of residual profits of large multinationals (revenue over EUR 20 billion, profitability above 10%) to market jurisdictions -- still under negotiation
- Pillar Two (Global Minimum Tax / GloBE Rules): Establishes a global minimum effective tax rate of 15% for large multinationals (revenue over EUR 750 million) -- already being implemented
- 143 members of the Inclusive Framework as of 2024; India is a member
- Countries that imposed unilateral digital taxes (India, France, UK, Italy, Spain, Turkey, Austria) agreed to withdraw them once Pillar One is implemented
- India's Union Budget 2025-26 introduced provisions aligning domestic law with Pillar Two (Subject to Tax Rule -- STTR)
- The US under the Trump administration has been critical of both pillars and threatened to withdraw from the framework
Connection to this news: The digital services tax issue in the factsheet must be understood in the context of this multilateral framework. India abolished its Equalisation Levy as part of its Inclusive Framework commitments, not as a bilateral concession to the US. The factsheet revision correctly reflects this by removing the claim.
Section 301 of the US Trade Act of 1974
Section 301 of the Trade Act of 1974 authorises the US Trade Representative (USTR) to investigate and take action against foreign trade practices that are "unjustifiable" or "unreasonable" and burden or restrict US commerce. It has been the primary US tool for trade enforcement outside the WTO framework and has been used extensively in the current administration's trade policy.
- Section 301 empowers the USTR to impose retaliatory tariffs, restrict imports, or negotiate to eliminate the foreign practice
- The USTR launched Section 301 investigations into digital services taxes of multiple countries (India, France, UK, Italy, Spain, Austria, Turkey) in 2020
- For India, the investigation focused on the 2% Equalisation Levy on e-commerce, finding it was "unreasonable or discriminatory" and "burdened or restricted US commerce"
- The US proposed up to 25% retaliatory tariffs on approximately $119 million of Indian imports but suspended action pending the OECD process
- Section 301 was also the legal authority for US tariffs on Chinese goods (2018-present)
- WTO compatibility of Section 301 is disputed; the WTO DSB ruled in 2000 (DS152) that the US must exhaust WTO procedures before imposing Section 301 actions, but the US has continued to use it unilaterally
Connection to this news: The digital services tax issue in the India-US trade factsheet has its roots in the 2020 Section 301 investigation. While India resolved the issue by abolishing the levy, the original factsheet's attempt to claim credit within the trade deal context shows the US desire to frame bilateral concessions even when the action was taken multilaterally.
Key Facts & Data
- India's 6% Equalisation Levy: introduced 2016, abolished April 1, 2025
- India's 2% Equalisation Levy: introduced April 2020, abolished August 1, 2024
- US Section 301 investigation into India's digital tax: launched June 2, 2020
- OECD Inclusive Framework members: 143 countries
- Pillar Two global minimum tax rate: 15% for companies with revenue over EUR 750 million
- Original factsheet claim (dropped): "India will remove its digital services taxes"
- Revised factsheet language: India committed to negotiate "robust set of bilateral digital trade rules"
- White House factsheet revised twice within hours of February 9, 2026 publication
- US proposed retaliatory tariffs on India under Section 301: up to 25% on approximately $119 million of Indian imports (suspended)