India Proposes Elimination of 6% Google Tax to Avert US Retaliatory Tariffs
India has proposed removing the 6% Google tax effective April 1, preceding US retaliatory tariffs. This is part of 59 amendments to the Finance Bill aimed at incentivizing offshore funds and clarifying tax processes.
The Indian government has proposed to eliminate the 6% equalisation levy on digital services, effective April 1. This decision coincides with the impending implementation of retaliatory tariffs by the United States on April 2, targeting nations that impose digital taxes on American tech firms. Finance Minister Nirmala Sitharaman introduced this provision as part of 59 amendments to the Finance Bill in Parliament.
Additional significant amendments include the removal of the term “indirectly” in provisions concerning offshore funds to encourage their relocation to India. Furthermore, a new definition, “total undisclosed income,” will clarify the intent behind search and seizure assessments, streamlining tax processes. Adjustments in the Income Tax Department’s processing of returns are also proposed.
The planned reduction of the equalisation levy aligns with ongoing trade negotiations between India and the US, aimed at preventing reciprocal tariffs set to take effect soon. The Indian government intends to eliminate certain income tax law exemptions previously afforded to companies under the equalisation levy.
Sudhir Kapadia, a senior advisor at EY, remarked, “Removal of the equalisation levy is a smart move by GoI as collections weren’t so significant and, at the same time, it was proving to be a red flag for the US administration.” He noted that this adjustment could serve as leverage in tariff negotiations.
Vishwas Panjiar, a partner at Nangia Andersen LLP, highlighted that this decision not only instills certainty for taxpayers but also addresses concerns from partner nations regarding the unilateral nature of the levy.
Historically, the US had threatened India with retaliatory tariffs up to 25% on various Indian goods after the introduction of the equalisation levy in 2016. This levy initially applied to advertisements from foreign online platforms and later expanded to all e-commerce businesses exceeding specified financial thresholds. The previous 2% levy was rescinded last August in response to the global tax agreement and US tariff negotiations.
Furthermore, the government proposes modifications to Section 9A concerning offshore fund managers, particularly targeting the wording that restricted Indian resident participation in investments. The removal of “indirectly” aims to alleviate barriers for foreign fund managers seeking to establish operations in India.
Anil Talreja from Deloitte India stated, “The proposed amendments to the Finance Bill, 2025 are largely clarificatory in nature, in line with the mission of the government to address doubts and issues being faced by taxpayers and business at large.”
In summary, the Indian government’s proposal to remove the 6% equalisation tax signals a strategic move to avert potential US retaliatory tariffs while enhancing its appeal as a destination for foreign investments. The proposed amendments seek to simplify tax regulations and clarify intent surrounding undisclosed income and offshore fund operations. These changes represent a proactive approach in navigating international trade dynamics.
Original Source: m.economictimes.com
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