A bilateral agreement between India and the US reached on Wednesday will allow New Delhi to continue to levy the 2% equalisation levy (so-called Google tax) on digital services offered in India by US-based MNEs without residence here for an interim period beyond this financial year. The period will be be co-terminus with when the OECD tax deal takes effect or the end of 2023-24 fiscal, whichever is earlier.

The leeway will give a temporary liquidity boost to India’s coffers, although it may have to fork out the excess tax amounts collected – over what the OECD agreement’s Pillar-1 entails — to the large US MNEs once the multilateral agreement is in force. The difference in tax liabilities on the said MNEs under the two regimes – equalisation levy and Pillar one – will be computed on the basis of the first year of Pillar-1 implementation.