Financial Express | 10 February 2026
India to commit zero tax on digital services in trade pact
The US has said that India will remove its digital services taxes and negotiate rules that prohibit the imposition of customs duties on digital transmissions as part of the trade deal finalised on Saturday through a joint statement.
The key detail of the digital trade was made public in the Fact Sheet on the deal released by the White House early Tuesday. The joint statement of February 6 just had a mention of both sides aggressing discriminatory or burdensome practices and other barriers to digital trade without mentioning taxes.
While India had removed 6% levy on payments made to non-resident companies for online advertising and 2% tax imposed on overseas e-commerce companies and streaming platforms in 2025, by putting in a trade agreement with the US it would forgo freedom to re-introduce it in future for American companies.
What do digital services include?
Digital services include using software as a service platform like Canva or Salesforce, downloading games or books and automated digital advertising. Electronic transmissions constitute moving of data from one point to another including email being routed through servers and other such activities.
According to experts, by agreeing to not tax digital services for the US, India could end up putting its local developers of digital at a disadvantage at a time when the Artificial Intelligence (AI) and services around it are exploding.
“By agreeing not to tax digital services, India would sign away its AI future. We will never be able to stop or tax AI on the border, we just have to completely open up,” executive director of Bengaluru-based NGO IT for Change Parminder Jeet Singh said at a press conference by Forum of Trade Justice.
The US has made Bangladesh, Malaysia and Indonesia agree to similar terms for digital trade taxation, the European Union (EU) maintains freedom to impose digital services tax.
“Agreeing to such a condition could put India’s domestic digital and technology firms at a disadvantage at a time when artificial intelligence and digital services are expanding rapidly. As more economic activity shifts to digital platforms, tax revenues from digital transactions will become increasingly important,” founder of Global Trade Research Initiative Ajay Srivastava said.
“These provisions would also weaken India’s ability to support its own digital ecosystem and lock the country into long-term reliance on US companies,” he added.
In the next 10 years every economic activity will have an intelligence layer that will come from outside, whether it is agriculture, MSMEs, local businesses, finance and accounting.
“India was earlier saying we will develop applications on the top of AI whose foundation models are developed in the US. Now the applications too are made in the US, like Anthropic’s Claude. By conservative estimates up to 40% of the value of any value chain of any economic activity will be skimmed by those who own AI models and applications, Singh said
“If we put a 40% tax on foreign AI in certain areas like it was done for industrial goods and try to develop local applications India will be able to develop capabilities to compete in that area.” he added.
Already there are views that the AI is going to capture so much value that citizens will have to live on universal basic income, derived from the tax from that company. These tax concessions need careful evaluation.
