As India and the US move closer to finalising a bilateral trade pact ahead of the 9 July tariff deadline, New Delhi is reassessing the timing and contours of pending policy measures that are sensitive to the interests of American tech giants.
These include the proposed Digital Competition Bill, a comprehensive e-commerce framework, and new income attribution rules for non-resident enterprises, according to three people familiar with the matter.
The recalibrations are being weighed to ensure the policy measures align with the broader objectives of the India-US trade deal and reflect India’s commitment to a trust-based regulatory framework and investment requirements, one of them said.
“Policy measures which are on the drawing board can also be a bargaining chip in bilateral treaty negotiations," said the second person quoted above. Both of them spoke on condition of anonymity.
The ministry of finance, the departments for promotion of industry and internal trade and commerce, and the Central Board of Direct Taxes (CBDT) did not reply to queries emailed on Friday.
India has offered several concessions to US exporters of goods and services in the previous two Union budgets, including customs duty reductions and scrapping of the equalisation levy on digital services rendered to Indian businesses by non-resident entities such as tech giants Google and Meta.
New Delhi is looking to finalise a bilateral agreement with Washington before the US’s 9 July reciprocal tariffs deadline. The US wants India to significantly reduce duties on American agricultural goods, dairy products, and shrimp, and remove non-tariff barriers restricting US dairy exports.
Washington, too, is under pressure to ensure the India-US trade deal passes before the deadline.
A 26% reciprocal tariff on Indian exports into the US, which includes the 10% universal baseline tariff that now applies to Indian exports, along with tariffs on imports from other countries, could push up retail price inflation in the US.
Concerns over the impact of reciprocal tariffs on inflation are already top on the mind of Federal Reserve Chair Jerome Powell, who has refused to buckle under pressure from President Trump to cut the benchmark lending rate. President Trump is pitching for rate cuts which could help lower the government’s interest payments and the budget deficit.
Key Takeaways
India is reassessing key digital economy policies—including the Digital Competition Bill and e-commerce framework—as it aligns with ongoing trade talks with the US.
Policy timing is being calibrated to serve as leverage in negotiations while minimizing compliance burdens on global tech firms.
India has already made concessions, such as scrapping the equalisation levy, to ease trade tensions and align with global tax norms.
Broader regulatory clarity is being prioritized, with concerns over cross-border data flow and foreign investment shaping India’s cautious stance.
India’s cautious approach
Among the measures being reviewed is India’s proposed Digital Competition Bill which seeks to introduce an ex-ante or forward-looking approach to regulating the digital economy. This will mandate influential tech firms to follow a code of conduct.
The draft Bill, as it is framed now, will affect digital economy firms’ ability to show targeted advertisements and the way people use Google services like maps, Mint reported on 24 April and 7 June, respectively, last year.
The government is also reviewing the proposed profit attribution rules to be rolled out by the Income Tax department. These are meant to levy tax on non-resident companies which have a ‘significant economic presence’ in India, defined on the basis of transaction value and user base.
But India’s double tax avoidance deal with the US makes it difficult to tax these entities, as only those defined as having a ‘permanent establishment’ here under the treaty can be taxed.
India abolished other efforts to tax tech giants catering to Indian customers remotely by removing the equalisation levy (6% on digital advertisements and 2% on e-commerce) over the last few months to ease trade tensions with the US and to remain aligned with OECD’s framework to check tax base erosion, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.
“However, it still has domestic rules like the Significant Economic Presence (SEP) concept and draft profit attribution rules under Section 9 of the Income Tax Act and Rule 10. For now, the profit attribution rules have not been made effective, and US-based companies can still claim tax treaty benefits in case of a SEP existing in India unless they have a permanent establishment here," said Maheshwari.
On Saturday, Canada rescinded a 3% digital services tax on big tech companies that was to take effect on 30 June. This was in response to Trump’s announcement on Friday that he was cutting off trade talks with Canada for going ahead with this tax.
E-commerce and FDI
India’s proposed comprehensive e-commerce policy, which has drawn strong interest from global entities such as Amazon and Walmart, is another measure under review as the countries reassess priorities in the wake of an eventful regime change in the US.
“This may not be the right time to push ahead with the e-commerce policy discussion, given the shifting global geopolitical scenario," a senior government official said.
India is also considering a tweak to its foreign direct investment (FDI) policy in retail to allow foreign investment in building inventory, which is currently permitted only for domestic players. The idea is to enable US-based retailers to invest in warehousing infrastructure.
The Digital Personal Data Protection Act of 2023 took into account some of the concerns of digital economy firms. “It is true that a lot of discussions have been happening on issues like the Digital Competition Bill and the e-commerce policy. Some of these developments may also come up during bilateral discussions with the relevant foreign governments," said Amol Kulkarni, director of research at CUTS International, a non-profit, non-governmental organization working on public interest issues.
The timing and form of these policy developments can offer India leverage in these discussions, Kulkarni said. "It is for the government to strike a fine balance in these talks taking into consideration the need for policy certainty and predictability and the gains that could come to the overall economy from specific policies," said Kulkarni.
“For instance, the regulation of cross border data flow had been subject to intense negotiation and the final framing under the Digital Personal Data Protection Act 2023 was quite accommodating, however, the requirements under the Digital Personal Data Protection Rules 2025 introduce some ambiguities, which could have been avoided, in the interest of policy certainty and predictability," said Kulkarni.
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