India takes pre-emptive steps to ease US trade tensions & avoid retaliatory tariffs 

In a significant diplomatic and economic maneuver, India has taken proactive steps to ease trade tensions with the United States and avert potential retaliatory tariffs. These measures, outlined in recent government actions, signal India’s commitment to fostering a more harmonious and collaborative trade relationship with its largest trading partner.

Abolition of the Equalization Levy (the “Google Tax”)

1. One of the most notable developments is India’s decision to remove the 6% equalization levy, often dubbed the “Google Tax.” 
2. This levy, introduced in 2016, applied to foreign digital companies generating revenue from Indian users without a physical presence in the country. U.S. tech giants such as Google and Meta had long viewed this tax as discriminatory, making it a persistent point of contention in bilateral trade discussions.
3. The removal of this levy, announced at the enactment stage of the Finance Bill 2025 and effective from April 1, 2025, is a direct response to U.S. concerns. This move aims to align India’s digital taxation framework with global consensus-driven approaches and facilitate smoother trade negotiations. 
4. The levy’s abolition is expected to reduce the tax burden on these digital companies and, potentially, lower advertising costs for Indian businesses.

Considering Tariff Reductions on U.S. Imports

1. In a further gesture of goodwill and strategic foresight, India is reportedly considering reducing tariffs on a substantial portion of U.S. imports, estimated to be valued at approximately $23 billion. 
2. This proactive measure seeks to preempt and mitigate the impact of potential U.S. retaliatory tariffs, which could otherwise affect a much larger volume of Indian exports, valued at an estimated $66 billion.
3. While the specifics of these tariff cuts are still under deliberation, discussions include a range of agricultural products such as almonds, pistachios, oatmeal, and quinoa. 
4. However, key domestic sectors like meat and dairy are expected to remain protected from these reductions, reflecting India’s efforts to balance trade liberalization with safeguarding its national interests.

Strategic Trade Diplomacy Ahead of Deadline

These concerted efforts underscore India’s commitment to de-escalating trade frictions and fostering stronger economic ties with the United States. By taking these preemptive actions ahead of the April 2 deadline for potential U.S. tariffs, India demonstrates a proactive and diplomatic approach to global trade challenges.

The ongoing discussions and proposed changes are indicative of a maturing trade relationship between the two democracies, emphasizing dialogue and mutual understanding to navigate complex global economic landscapes. As India continues to integrate into the global economy, such strategic moves will be crucial in shaping its international trade policies and alliances.
Source: https://www.reuters.com/world/india/india-eyes-tariff-cut-23-bln-us-imports-shield-66-bln-exports-sources-say-2025-03-25/

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Dhairya Chaniyara

Senior Associate | Financial Advisory | dhairya.c@treelife.in

Focuses on direct tax and regulatory services with a specialization in GIFT IFSC. Brings experience from various industries, including manufacturing, FMCG, IT-ITES, and healthcare, to deliver impactful tax solutions.