India and the US have decided to extend a 2 per cent equalisation levy or digital tax on e-commerce supplies until June 30, the Finance Ministry announced on Friday.

In a major reform of the international tax system, India and the US have joined 134 other members of the OECD/G20 Inclusive Framework (including Austria, France, Italy, Spain, and the UK) in reaching an agreement on October 8, 2021, on the statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

On December 18, 2023, the Inclusive Framework issued a statement calling for finalisation of the text of the Pillar 1 multilateral convention by the end of March 2024 with a view to holding a signing ceremony by the end of June 2024.

The India-US agreement has been signed keeping this in mind.

Earlier, on October 21, 2021, the US and Austria, France, Italy, Spain, and the UK reached a political compromise on the transitional approach to the unilateral measures in force while Pillar 1 is implemented.

On November 24, 2021, India and the US agreed that the same terms that apply under the October 2021 Joint Statement shall apply between India and the US with respect to India’s charge of 2 per cent equalisation levy on e-commerce supply of services and the US’ trade action regarding the said Equalisation Levy.

The validity of this agreement was from April 1, 2022, till implementation of Pillar 1 or March 31, 2024, whichever is earlier.

On December 18, 2023, the Inclusive Framework issued a statement calling for finalisation of the text of the Pillar 1 multilateral convention by the end of March 2024 with a view to holding a signing ceremony by the end of June 2024.

On February 15, 2024, the US and Austria, France, Italy, Spain, and the UK decided to extend the political compromise set forth in the October 21 Joint Statement until June 30, 2024.

“In light of the above developments, India and the US have decided to extend the validity of the agreement reflected in the November 24 statement until June 30, 2024. All other terms of the transitional approach remain the same,” the Finance Ministry said in a statement.

India and the US will remain in close contact to ensure that there is common understanding of the respective commitments and endeavour to resolve all issues on this matter through constructive dialogue, the Finance Ministry statement added.