India-US agreement on 2% e-commerce levy expires
02 Jul 2024
A transitional framework agreement on levying a two per cent tax on cross-country digital transactions adopted by India and the United States on 24 November 2021, expires on 30 June 2024, which necessitates the signing of a new tax agreement.
India and the US had agreed to continue with a 2 per cent equalisation levy charged by India on crossborder e-commerce supply of services and the US’ trade action regarding the said Equalisation Levy.
The agreement, signed on 24 November 2022, was on the same terms that apply to the OECD/G20 Inclusive Framework agreement to address tax challenges arising from digitalisation of trade.
Equalisation Levy is a direct tax levied on online transactions with non-resident or consideration received by a non-resident for specific services.
India introduced the tax through Finance Act 2016. E of The levy is charged on several cross-border e-commerce transactions regardless of the physical presence of any country. However, the US has so far desisted from taking any retaliatory measure. The status quo on trade equalisation measure could continue until the implementation of Pillar One of the OECD’s global tax reform initiative.
India, along with the other signatories will now have to provide credit for the collected equalisation levy against future Pillar 1 obligations.
