# India US Trade Deal 2026: Tariffs and What It Means for US Groups

> Source: https://krystal7.com/insights/us-india-trade-deal-2026-tariffs
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 15 Feb 2026; updated 24 Oct 2026
> Summary: The India US framework of 6 Feb 2026 set an 18 percent tariff and removed the extra 25 percent duty. See its status today and the transfer pricing impact.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- The United States and India agreed a framework for an Interim Agreement on 6 Feb 2026. The US said it would apply an 18 percent reciprocal tariff to Indian goods, down from 25 percent.
- Executive Order 14384 removed the extra 25 percent duty linked to Russian oil for Indian goods entered from 12:01 a.m. EST on 7 Feb 2026. Combined duty on most Indian goods had been 50 percent.
- On 20 Feb 2026 the US Supreme Court held that IEEPA does not authorise tariffs. A 10 percent Section 122 surcharge then ran from 24 Feb to 24 Jul 2026.
- From 24 Jul 2026 most Indian goods face a 10 percent Section 301 tariff on top of normal duty. On 28 Sep 2026 India's Commerce Ministry said it aimed to finalise the interim deal.
- A US parent that asks its Indian subsidiary to absorb tariffs through lower prices shifts profit out of India. Expect a transfer pricing adjustment under sections 161 to 173 of the Income Tax Act, 2025.

**The India US trade deal is a framework for an Interim Agreement, announced in a joint statement on 6 Feb 2026. The US said it would apply an 18 percent reciprocal tariff to Indian goods, down from 25 percent. Executive Order 14384 removed the extra 25 percent Russia oil duty from 7 Feb 2026. We found no signed Interim Agreement by 23 Oct 2026, and Indian goods now pay a 10 percent Section 301 tariff instead.**

This page is for US groups whose Indian subsidiary ships goods to the US. It is also for the Indian finance teams that price those shipments. It covers the 2025 escalation, the February 2026 framework, what happened after it, and the transfer pricing, customs and FEMA effects.

## What is the India US trade deal of February 2026?

The India US trade deal is a joint statement that sets out a framework for an Interim Agreement. The White House published it on 6 Feb 2026 and India's Commerce Ministry released it on 7 Feb 2026. It is a political commitment, not a signed treaty. Both sides said they would "promptly implement this framework" and finalise the Interim Agreement.

Read the text on the [White House page](https://www.whitehouse.gov/briefings-statements/2026/02/united-states-india-joint-statement/) or in [PIB release 2224783](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2224783&reg=3&lang=2). The White House followed with a [fact sheet on 9 Feb 2026](https://www.whitehouse.gov/fact-sheets/2026/02/fact-sheet-the-united-states-and-india-announce-historic-trade-deal/).

The Interim Agreement sits inside a larger negotiation. President Trump and Prime Minister Modi launched talks on a Bilateral Trade Agreement (BTA) on 13 Feb 2025. The two sides agreed terms of reference in April 2025. The joint statement says the Interim Agreement is a step on the BTA roadmap.

Trade at stake is large. India's total exports to the US were USD 86.35 billion in 2024 (PIB Research note, 9 Feb 2026). USTR puts India's 2025 bilateral trade surplus with the US at USD 42 billion (USTR Section 301 initiation notice, 11 Mar 2026).

## How did US tariffs on Indian goods reach 50 percent in 2025?

US tariffs on most Indian goods reached 50 percent on 27 Aug 2025. Two separate orders under the International Emergency Economic Powers Act (IEEPA) did this. A 25 percent reciprocal tariff applied from 7 Aug 2025. An extra 25 percent duty, linked to India's purchases of Russian oil, applied from 27 Aug 2025.

Both duties sat on top of the normal US duty in the Harmonized Tariff Schedule (HTSUS). The table shows each step for an ordinary Indian product.

| Date in force | US instrument | Extra US duty on most Indian goods (%) | Note |
|---|---|---|---|
| 5 Apr 2025 | Executive Order 14257 of 2 Apr 2025 | 10% | Baseline reciprocal tariff for all countries |
| 9 Apr 2025 | Executive Order 14257, Annex I | 26% (announced) | India's country rate, paused the same day |
| 9 Apr 2025 | Order of 9 Apr 2025 on retaliation and alignment | 10% | Country rates paused, baseline kept |
| 7 Aug 2025 | Executive Order 14326 of 31 Jul 2025 | 25% | India's reciprocal rate |
| 27 Aug 2025 | Executive Order 14329 of 6 Aug 2025 | 25% + 25% = 50% | Russia oil duty under HTSUS heading 9903.01.84 |

Sources: [EO 14257](https://public-inspection.federalregister.gov/2025-06063.pdf), [EO 14326](https://www.federalregister.gov/documents/2025/08/06/2025-15010/further-modifying-the-reciprocal-tariff-rates), [CBP notice on EO 14329](https://www.federalregister.gov/documents/2025/08/27/2025-16419/notice-of-implementation-of-additional-duties-on-products-of-india-pursuant-to-the-presidents).

Several goods escaped both IEEPA duties. Annex II of EO 14257 listed pharmaceuticals, semiconductors, copper, lumber, certain critical minerals and energy products. Goods under Section 232 duties, such as steel, aluminium, cars and auto parts, also fell outside. Section 232 duties applied to them instead.

The Russia oil duty had a transit window. Goods loaded before 27 Aug 2025 and entered before 17 Sep 2025 paid only the 25 percent reciprocal rate (HTSUS heading 9903.01.85).

## What did the February 2026 framework change for US tariffs?

The framework changed three things on the US side. The US said it would apply an 18 percent reciprocal tariff to originating Indian goods. It removed the 25 percent Russia oil duty by a separate order. It also promised zero reciprocal tariff on some goods once the Interim Agreement is concluded.

The Russia oil duty went first. [Executive Order 14384](https://www.federalregister.gov/documents/2026/02/11/2026-02818/modifying-duties-to-address-threats-to-the-united-states-by-the-government-of-the-russian-federation) of 6 Feb 2026 removed it for goods entered from 12:01 a.m. EST on 7 Feb 2026. The order rests on India's commitment "to stop directly or indirectly importing Russian Federation oil". The Commerce Secretary must monitor that commitment. If India resumes such imports, the order lets the President take further action, including reimposing the duty.

The 18 percent rate needed its own instrument. The White House fact sheet says the US "will lower" the rate from 25 percent to 18 percent. We found no executive order, Federal Register notice or USTR page that changed India's rate before the IEEPA duties ended. EO 14384 changed only the Russia oil duty. CBP's refund notice counts IEEPA duties up to 24 Feb 2026. Check the entry summaries for the rate CBP charged on entries between 7 and 24 Feb 2026.

| US commitment in the joint statement | Condition | Status on 23 Oct 2026 |
|---|---|---|
| 18% reciprocal tariff under EO 14257 on Indian goods | Stated as a framework term | Overtaken: EO 14389 of 20 Feb 2026 ended the IEEPA tariffs |
| Remove the extra 25% Russia oil duty | India stops Russian oil imports | Done by EO 14384 from 7 Feb 2026 |
| Zero reciprocal tariff on goods in the EO 14346 annex (generic pharmaceuticals, gems and diamonds, aircraft parts) | Conclusion of the Interim Agreement | Interim Agreement not concluded |
| Remove tariffs on certain Indian aircraft and aircraft parts | Conclusion of the Interim Agreement | Interim Agreement not concluded |
| Preferential tariff rate quota for Indian auto parts | Conclusion of the Interim Agreement | Interim Agreement not concluded |
| Negotiated outcome on generic pharmaceuticals | Result of the Section 232 pharmaceuticals investigation | Generics outside Section 232 duty under the 2 Apr 2026 proclamation |

Sources: [joint statement](https://www.whitehouse.gov/briefings-statements/2026/02/united-states-india-joint-statement/), [EO 14384](https://www.federalregister.gov/documents/2026/02/11/2026-02818/modifying-duties-to-address-threats-to-the-united-states-by-the-government-of-the-russian-federation), [pharmaceuticals proclamation](https://www.whitehouse.gov/presidential-actions/2026/04/adjusting-imports-of-pharmaceuticals-and-pharmaceutical-ingredients-into-the-united-states/).

## What does India give under the framework?

India said it would eliminate or reduce tariffs on all US industrial goods and many US food and farm products. The statement names dried distillers' grains, red sorghum for feed, tree nuts, fruit, soybean oil, wine and spirits. India also intends to buy USD 500 billion of US energy, aircraft, precious metals, technology products and coking coal over five years.

The non tariff commitments matter to US groups that sell into India. India agreed to address barriers to US medical devices. It agreed to drop restrictive import licensing for US ICT goods. Within six months of entry into force, India will decide whether to accept US or international standards and testing for agreed sectors.

India kept its sensitive farm lines out. PIB Research lists dairy, meat, poultry, millets, pulses, oilseeds, honey, tobacco, GM food and maize among the protected lines (PIB Research note, 9 Feb 2026). Some other lines, such as barley and canary seeds, get zero duty.

None of India's tariff cuts apply yet. They depend on the Interim Agreement and on Indian customs notifications. We found no CBIC notification giving effect to them by 23 Oct 2026. A US parent that ships components to its Indian subsidiary still pays India's standard basic customs duty.

## Which sectors does the trade deal affect?

The framework mostly helps labour intensive Indian exports that paid the full 50 percent in late 2025. PIB lists textiles and apparel, leather and footwear, gems and jewellery, home decor, toys and machinery. Pharmaceuticals and many electronics were outside the IEEPA duties throughout. Metals and autos face Section 232 duties, which the framework only touches at the margins.

| Sector | US duty position, Sep 2025 to 6 Feb 2026 | Framework term (6 Feb 2026) | Position from 24 Jul 2026 |
|---|---|---|---|
| Textiles, apparel, carpets, home textiles | Normal duty + 50% | 18% reciprocal | Normal duty + 10% Section 301, subject to annex exemptions |
| Leather and footwear | Normal duty + 50% | 18% reciprocal | Normal duty + 10% Section 301 |
| Gems, jewellery, diamonds | Normal duty + 50% | Zero on gems and diamonds after the Interim Agreement | Normal duty + 10% Section 301, subject to annex exemptions |
| Organic chemicals, plastics, rubber | Normal duty + 50% | 18% reciprocal | Normal duty + 10% Section 301 |
| Machinery and parts (not aircraft) | Normal duty + 50% | 18% reciprocal | Normal duty + 10% Section 301 |
| Generic pharmaceuticals | Exempt (Annex II of EO 14257) | Zero after the Interim Agreement | Not subject to Section 232; check the Section 301 annex |
| Steel, aluminium, copper articles | Section 232 duty, not IEEPA | Aircraft related relief only | Section 232: 50% on full value, 25% for derivatives (2 Apr 2026, adjusted from 8 Jun 2026) |
| Auto parts | Section 232 duty | Preferential tariff rate quota after the Interim Agreement | Section 232 duty continues |
| IT, ITeS and other services | No tariff on services | Not covered | No tariff on services |

Sources: [PIB Research note](https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/feb/doc202629783101.pdf), [joint statement](https://www.whitehouse.gov/briefings-statements/2026/02/united-states-india-joint-statement/), [Section 301 final action](https://ustr.gov/sites/default/files/files/Press/Releases/2026/FLIP%20301%20Investigation%20Final%20Action%20FRN%207-23-26%20FINAL.pdf), [metals fact sheet](https://www.whitehouse.gov/fact-sheets/2026/04/fact-sheet-president-donald-j-trump-strengthens-tariffs-on-steel-aluminum-and-copper-imports/).

Product level answers depend on the HTSUS line and the annexes. The Section 301 annexes list exempt products, and the published text shows them only as images. Ask the importer of record's customs broker to confirm the line before you change a price.

## Is the India US Interim Agreement signed or in force?

No. On 15 Feb 2026 the deal was a framework only. We found no signed Interim Agreement on USTR, White House or Commerce Ministry pages by 23 Oct 2026. On 28 Sep 2026 India's Commerce Ministry announced a US visit by Minister Piyush Goyal from 29 Sep to 5 Oct 2026. Its aim was to "finalise an interim deal in line with the Joint Statement of 7 February 2026".

On 21 Jun 2026 USTR announced that Ambassador Jamieson Greer would visit New Delhi that week for talks on the Interim Agreement. See the [USTR release](https://ustr.gov/about/policy-offices/press-office/press-releases/2026/june/ambassador-greer-travel-india-and-uzbekistan). The [PIB release of 28 Sep 2026](https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2316127&amp=&reg=3&amp=&lang=1) adds that Minister Goyal would attend the G20 Trade Ministers' Meeting in Milwaukee on 30 Sep and 1 Oct 2026.

We found no announcement of a signed Interim Agreement after that visit. USTR's list of signed agreements on its [tariff actions page](https://ustr.gov/trade-topics/presidential-tariff-actions) does not include India. Check the Commerce Ministry and USTR pages for the outcome before you rely on any India rate.

Other US partners moved faster. USTR published signed reciprocal trade agreements with Bangladesh (9 Feb 2026), Taiwan (12 Feb 2026) and Indonesia (19 Feb 2026). See the [USTR tariff actions page](https://ustr.gov/trade-topics/presidential-tariff-actions). India's deal stayed at framework stage.

Until signature and entry into force, plan on the tariff that customs charges today. Treat any zero rate in the framework as upside.

## What has happened since 15 Feb 2026?

Five days after the publish date, the legal base for the deal's tariff terms fell away. On 20 Feb 2026 the US Supreme Court decided *Learning Resources, Inc. v. Trump* and held that IEEPA does not authorise tariffs. The US then ended the IEEPA duties and replaced them with other statutes. The 18 percent rate never became the long term rate.

The order of events matters for any shipment you priced in 2026.

| Date | Event | Instrument | Effect on Indian goods |
|---|---|---|---|
| 20 Feb 2026 | Supreme Court rules IEEPA does not authorise tariffs | *Learning Resources, Inc. v. Trump* | Reciprocal and Russia oil duties unlawful |
| 20 Feb 2026 | IEEPA duties ordered to end | Executive Order 14389, "Ending Certain Tariff Actions" | Ends duties under EOs 14257 and 14329, among others, "as soon as practicable"; CBP counts IEEPA duties up to 24 Feb 2026 |
| 24 Feb 2026 | Temporary surcharge starts | Section 122 proclamation of 20 Feb 2026 | 10% on all countries, with exemptions |
| 11 Mar 2026 | Excess capacity investigation opens | Section 301, 16 economies including India | Hearings from 5 May 2026; we found no USTR determination or action for India by 23 Oct 2026 |
| 12 Mar 2026 | Forced labour investigation opens | Section 301, 60 economies including India | Actionable finding on 2 Jun 2026; action proposed on 5 Jun 2026 |
| 2 Apr 2026 | Metals regime reset | Section 232 proclamation | 50% on full value; 25% for derivatives; products with 15% or less metal no longer under Section 232 metals duties |
| 2 Apr 2026 | Pharmaceuticals duty | Section 232 proclamation | 100% on patented drugs from 31 Jul 2026 (Annex III companies) or 29 Sep 2026 (others); generics not subject at this time |
| 8 Jun 2026 | Metals regime adjusted | Section 232 proclamation of 1 Jun 2026 | Lower or separate rates for some products and partners; check the annexes |
| 24 Jul 2026 | Section 122 surcharge expires; new tariff starts | Section 301 notice and memorandum of 23 Jul 2026 | 10% on goods of India from 12:01 a.m. on 24 Jul 2026 |
| 16 Oct 2026 | Russia sanctions law implemented | Executive Order 14436 (Graham Act) | 100% duty powers on large Russian oil buyers for new purchases from 18 Oct 2026, waived for now |

Sources: [EO 14389](https://www.whitehouse.gov/presidential-actions/2026/02/ending-certain-tariff-actions/), [Section 122 proclamation](https://www.whitehouse.gov/presidential-actions/2026/02/imposing-a-temporary-import-surcharge-to-address-fundamental-international-payments-problems/), [Section 301 memorandum](https://www.federalregister.gov/documents/full_text/html/2026/07/28/2026-15274.html), [metals proclamation of 1 Jun 2026](https://www.whitehouse.gov/presidential-actions/2026/06/further-adjusting-the-tariff-regimes-for-imports-of-aluminum-steel-and-copper/), [EO 14436](https://www.federalregister.gov/documents/2026/10/21/2026-21599/implementing-the-lindsey-o-graham-sanctioning-russia-and-iran-act-of-2026), [CBP refund notice](https://www.federalregister.gov/documents/2026/07/08/2026-13771/agency-information-collection-activities-extension-court-ordered-refunds-under-the-international).

The Section 122 surcharge had firm limits. Section 122 of the Trade Act of 1974 allows up to 15 percent for up to 150 days unless Congress extends it. The proclamation set 10 percent, ran it to 12:01 a.m. EDT on 24 Jul 2026 and kept it off Section 232 goods. Pharmaceuticals, energy, certain electronics and certain aerospace products were also outside it.

The Section 301 tariff replaced it from the same hour. The 23 Jul 2026 memorandum places India in the 10 percent group. It notes that India adopted a forced labour import prohibition after USTR's proposal.

Economies that have not adopted such a prohibition pay 12.5 percent. USTR's [fact sheet on the action](https://ustr.gov/about/policy-offices/press-office/fact-sheets/2026/july/fact-sheet-ustr-section-301-action-response-failure-60-economies-ban-imports-produced-forced-labor) lists "all articles and parts of articles subject to section 232 tariffs" among the exemptions. So Section 232 goods do not pay the Section 301 tariff on top. Annexes I and II list the other exempt products.

The Russia oil link has not gone away. EO 14384 still lets the US act if India resumes Russian oil imports. EO 14436 of 16 Oct 2026 sets a 100 percent duty power against the five largest buyers of Russian crude and gas. Section 4 of that order waives the duties for now. It does not name India.

## What does the trade deal mean for an Indian subsidiary that exports to its US parent?

For most Indian subsidiaries the tariff is the US parent's cost, not the subsidiary's. The importer of record files the US entry and owes the duty. In a typical set up the parent buys on FOB or FCA terms and acts as importer of record. The Indian company's revenue, GST position and Indian tax stay the same unless the price changes.

The risk sits in three places.

1. **Price pressure.** The parent asks the subsidiary to cut prices to share the tariff. This moves profit out of India and invites a transfer pricing adjustment.
2. **DDP contracts.** The subsidiary sells on delivered duty paid terms and is the importer of record. It then bears the duty directly and must handle US entries, bonds and refunds.
3. **Volume loss.** The parent moves orders to a lower tariff country. A contract manufacturer on cost plus should still earn its mark up on lower volumes. Idle capacity costs need a policy in the intercompany agreement.

Check who the importer of record is on the actual entries. We often find that the intercompany agreement says FOB but the US broker files in the Indian company's name. Fix the mismatch before a refund or a dispute exposes it.

For the wider set up questions, see our guides on [setting up a subsidiary in India for US companies](/insights/how-to-set-up-a-subsidiary-in-india-us-guide) and [manufacturing company registration in India](/insights/manufacturing-company-registration-in-india).

## How do US tariffs affect transfer pricing between the Indian subsidiary and the US parent?

Tariffs do not change the arm's length principle. Sections 161 to 173 of the Income Tax Act, 2025 still require an Arm's Length Price on sales to the US parent. If the parent pushes a price cut to absorb a tariff, the Indian tax officer tests the new margin against comparables. A low risk manufacturer rarely bears a customer's import duty.

The answer depends on the functional profile of the Indian entity.

| Indian subsidiary profile | Usual method | Who bears a US tariff at arm's length | Price change defensible? |
|---|---|---|---|
| Contract manufacturer, cost plus | TNMM on cost | The principal (US parent) | Rarely; mark up should hold |
| Limited risk distributor or exporter | TNMM on sales | Mostly the principal | Only within the comparables' margin band |
| Full risk manufacturer selling to group | CUP or TNMM | Shared, as unrelated parties would | Possible, with evidence of third party renegotiation |
| Captive service centre (no goods) | TNMM on cost | Not relevant: services carry no tariff | Not relevant |

Document the reason for any price change in the year it happens. Unrelated parties did renegotiate prices in 2025. If the Indian entity also sells to unrelated US buyers, its own third party price cuts are strong evidence. Without that, a cut reads as profit shifting.

Report the revised price in Form 48 (old Form 3CEB) under section 172 for the tax year. An Advance Pricing Agreement under section 168 can fix the method for a block of future years and reduce dispute risk. See our pages on [transfer pricing between a US parent and an Indian subsidiary](/insights/transfer-pricing-us-parent-indian-subsidiary), [arm's length price methods](/insights/arms-length-price-methods-in-india) and [Form 3CEB filing](/insights/form-3ceb-filing-requirement-foreign-founders-india).

If the tax officer makes an adjustment and the parent does not pay the difference, a secondary adjustment can follow. The old rule was section 92CE of the Income Tax Act, 1961. The new rule is [section 170 of the Income Tax Act, 2025](https://www.incometaxindia.gov.in/w/section-170-83), "Secondary adjustment in certain cases". It applies to a primary adjustment of INR 1 crore or more. Excess money not brought back to India in the prescribed time is treated as an advance to the parent, with interest as prescribed. The subsidiary may instead pay 18 percent additional tax on the excess.

## How does customs valuation interact with transfer pricing?

Customs and income tax both look at the same intercompany price, from opposite sides. US customs wants the import value high enough. The Indian tax officer wants the export price high enough. A low transfer price saves US duty but raises Indian tax risk. A year end true up that raises the price can create extra US duty and an Indian refund question.

On the US side, customs value is normally the transaction value under 19 U.S.C. 1401a. Related party prices are accepted if the relationship did not influence the price. Ask the importer of record's customs adviser how it reports year end adjustments. That is a US question and outside our scope.

On the Indian side, two rules apply.

1. **Exports from India.** The shipping bill value must match the invoice. The FEMA rules then track realisation of that value. A later price cut changes the realisable amount (see the FEMA section below).
2. **Imports into India from the parent.** Section 14 of the Customs Act, 1962 governs value. The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 add the detail. Customs tests whether the relationship influenced the price. Indian customs and Indian transfer pricing can push in opposite directions on the same import.

Use one pricing policy and one set of comparables for both regimes. Keep the intercompany agreement, the transfer pricing study and the customs declarations consistent.

## Can the US parent or the Indian subsidiary get a refund of IEEPA duties?

Yes, the importer of record can claim a refund of IEEPA duties through CBP. CBP processes the claims through its CAPE tool in the ACE portal. Only ACE account holders, or brokers acting for them, can file. IEEPA duties assessed from 3 Feb 2025 to 24 Feb 2026 total an estimated USD 166 billion (CBP notice, 8 Jul 2026).

The refund flows from the court cases. The Supreme Court decided *Learning Resources, Inc. v. Trump* on 20 Feb 2026. The Court of International Trade then ordered CBP to liquidate or reliquidate entries without the IEEPA duties. A second case (CIT Court No. 25-00595) became the test case on 7 Apr 2026 ([CBP notice](https://www.federalregister.gov/documents/2026/07/08/2026-13771/agency-information-collection-activities-extension-court-ordered-refunds-under-the-international)).

Three points for an Indian subsidiary:

1. **If the parent was importer of record**, the parent gets the refund. If the subsidiary cut its prices in 2025 to share the tariff, the parent now holds both the price cut and the refund. Review whether the intercompany agreement requires a true up back to India.
2. **If the subsidiary was importer of record**, it claims the refund itself through a US broker with ACE access. The refund is income or a reversal of expense in the Indian books for the year of receipt.
3. **Section 232 and Section 301 duties are not refundable** under this process. Only IEEPA duties fall within it.

## What FEMA, GST and export rules apply when prices change?

A price change on exports to the parent touches FEMA, GST and income tax together. FEMA requires realisation of the full export value within nine months from shipment, or twelve months for rupee invoicing. A price cut after shipment needs an AD bank reduction. GST zero rating does not change with the US tariff.

From 1 Oct 2026 the [Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=13277) (FEMA 23(R)/2026-RB) apply. Regulation 5(1) sets the nine and twelve month periods. Regulation 6 lets the Authorised Dealer (AD) Category I bank allow a reduction in export value on the exporter's reasons. For an export value up to INR 10,00,000 per shipping bill, the exporter's declaration is enough.

A credit note to the parent needs the bank's reduction or a matching adjustment. Without it, EDPMS shows the shipment as part unrealised. See our guide on the [export proceeds realisation period](/insights/export-proceeds-realisation-period-fema).

GST does not change. Exports of goods stay zero rated under section 16 of the IGST Act, 2017, under a Letter of Undertaking (LUT) or with refund of IGST. See our page on [LUT filing for exporters](/insights/lut-filing-for-exporters-under-gst). A post export price cut changes the export value for any refund claim. Match the credit note to the refund file.

## Do the tariffs affect Indian IT services and Global Capability Centres?

No. US tariffs apply to goods at the border. Software development, IT enabled services, R&D and back office work delivered by an Indian subsidiary to its US parent carry no US tariff. The framework does not cover services. Its digital trade clause only promises talks on digital trade rules in the BTA.

Services exports still carry their own Indian rules. From 1 Oct 2026 the EDF replaces SOFTEX under FEMA 23(R)/2026-RB. The Indian company files it within 30 days from the end of the invoice month. Pricing follows Indian transfer pricing, and the IT services safe harbour under section 167 is available. GST treats the service as zero rated export where the conditions are met.

## What changed in 2026

| Item | Old position | New position | Date | Instrument |
|---|---|---|---|---|
| Russia oil duty on Indian goods | Extra 25% from 27 Aug 2025 | Removed | 7 Feb 2026 | EO 14384 of 6 Feb 2026 |
| Reciprocal tariff on Indian goods | 25% from 7 Aug 2025 | 18% agreed in the framework; IEEPA duties then ended | 6 Feb 2026 and 20 Feb 2026 | Joint statement; EO 14389 |
| Legal basis for reciprocal tariffs | IEEPA | IEEPA does not authorise tariffs | 20 Feb 2026 | *Learning Resources, Inc. v. Trump* |
| Temporary US surcharge | None | 10% on most goods of all countries | 24 Feb to 24 Jul 2026 | Section 122 proclamation of 20 Feb 2026 |
| Tariff on goods of India | Section 122 surcharge | 10% Section 301 tariff | 24 Jul 2026 | USTR notice and memorandum of 23 Jul 2026 |
| Metals | 50% on metal content | 50% on full value; 25% derivatives; products with 15% or less metal outside Section 232 metals duties; adjusted again from 8 Jun 2026 | 2 Apr 2026 and 8 Jun 2026 | Section 232 proclamations of 2 Apr 2026 and 1 Jun 2026 |
| Patented pharmaceuticals | No Section 232 duty | 100%, generics not subject at this time | 31 Jul 2026 or 29 Sep 2026, by company | Section 232 proclamation of 2 Apr 2026 |
| Indian export realisation | 2015 Regulations | Nine months; AD bank reductions under regulation 6 | 1 Oct 2026 | FEMA 23(R)/2026-RB |

## Worked example

An Indian Private Limited company makes home textiles for its US parent on a cost plus basis. The parent is importer of record. Costs for the year are USD 1,000,000 and the arm's length mark up is 10 percent. The sale price is USD 1,100,000. We assume a 6 percent normal US duty on the product and INR 88 to the dollar. Both assumptions are for illustration only.

**Part A. US duty under each regime (paid by the parent)**

| Period | Duty rates applied | Duty rate total (%) | US duty on USD 1,100,000 (USD) |
|---|---|---|---|
| 27 Aug 2025 to 6 Feb 2026 | 6% normal + 25% reciprocal + 25% Russia oil | 56% | 616,000 |
| 7 Feb to 23 Feb 2026 | 6% normal + 25% reciprocal | 31% | 341,000 |
| 24 Feb to 23 Jul 2026 | 6% normal + 10% Section 122 | 16% | 176,000 |
| From 24 Jul 2026 | 6% normal + 10% Section 301 | 16% | 176,000 |

The 7 to 23 Feb 2026 row assumes the 25 percent rate continued. We found no order that lowered it to 18 percent.

**Part B. The parent asks for an 8 percent price cut**

1. New price: USD 1,100,000 × 92% = USD 1,012,000.
2. New mark up: (1,012,000 − 1,000,000) ÷ 1,000,000 = 1.2 percent.
3. US duty saved at 16 percent: USD 88,000 × 16% = USD 14,080.
4. The tax officer restores the 10 percent mark up. Adjustment: USD 88,000 × 88 = INR 77,44,000.
5. Indian tax under section 200 (old section 115BAA) at 25.168 percent: INR 77,44,000 × 25.168% = INR 19,49,010.
6. In dollars, the Indian tax is about USD 22,148 (INR 19,49,010 ÷ 88). That exceeds the US duty saved.

The group pays more tax in India than it saves in US duty, before interest, penalty and any secondary adjustment. The US parent also loses part of its US deduction if the adjustment is not mirrored. A tariff led price cut rarely pays for a cost plus manufacturer.

**Part C. IEEPA refund**

Suppose the subsidiary sold on DDP terms for part of 2025 and was importer of record. It paid IEEPA duty of 50 percent on USD 400,000 of goods entered between 27 Aug 2025 and 6 Feb 2026. That is USD 200,000. It files a CAPE declaration through its US broker for the IEEPA portion only. The 6 percent normal duty of USD 24,000 is not refundable.

## Common mistakes

1. **Treating the framework as law.** The joint statement of 6 Feb 2026 is not a signed agreement. Fix: price on the tariff customs charges today and track the Interim Agreement as upside.
2. **Cutting the intercompany price without evidence.** A cost plus manufacturer that absorbs a customer's duty fails the arm's length test. Fix: keep the mark up, or document third party renegotiations of the same period.
3. **Not knowing who the importer of record is.** Contracts say FOB while US entries name the Indian company. Fix: pull the entry summaries and align the contract, the entries and the refund claim.
4. **Leaving IEEPA refunds unclaimed or unshared.** Refunds need an ACE account and a CAPE filing. Fix: confirm who files, and review whether 2025 price cuts must be trued up to India.
5. **Issuing credit notes without an AD bank reduction.** EDPMS then shows unrealised exports. Fix: apply for a reduction under regulation 6 of FEMA 23(R)/2026-RB with the commercial reason.
6. **Ignoring the Russia oil condition.** EO 14384 keeps a reimposition route open. Fix: include a tariff change clause in the intercompany agreement that covers reimposed duties.
7. **Using different prices for customs and tax.** Year end true ups that never reach the customs declarations create two versions of the price. Fix: run one pricing policy and record adjustments in both regimes.

## Checklist

1. Confirm the importer of record on every US entry since 7 Aug 2025.
2. List each product's HTSUS line and check it against the Section 301 and Section 232 annexes.
3. Calculate the US duty on each line under the regime in force on the entry date.
4. Review the intercompany agreement for tariff, pricing and true up clauses.
5. Test any proposed price change against the Indian entity's transfer pricing comparables.
6. Record the commercial reason for any price change before the invoice goes out.
7. File CAPE declarations for refundable IEEPA duties through a broker with ACE access.
8. Apply to the AD bank for a reduction under regulation 6 before issuing a credit note on an export.
9. Match credit notes to any GST refund claim on the same exports.
10. Report the final prices in Form 48 (old Form 3CEB) for the tax year.
11. Track the Interim Agreement, the Russia oil monitoring under EO 14384 and any Section 301 changes each quarter.

Our [transfer pricing advisory](/services/transfer-pricing-advisory.html) team can review the intercompany price and the export file together.

## Key terms

- **Reciprocal tariff**: The country specific ad valorem duty the US imposed under Executive Order 14257 of 2 Apr 2025, using the International Emergency Economic Powers Act. It applied on top of normal US duty. The US Supreme Court held on 20 Feb 2026 that IEEPA does not authorise such tariffs. (https://krystal7.com/glossary#reciprocal-tariff)
- **International Emergency Economic Powers Act (IEEPA)**: A US federal law that lets the President regulate transactions during a declared national emergency. The US used it in 2025 for reciprocal and Russia linked tariffs. The Supreme Court ruled in Learning Resources, Inc. v. Trump that it does not authorise tariffs. (https://krystal7.com/glossary#international-emergency-economic-powers-act)
- **Section 122 surcharge**: A temporary import duty of up to 15 percent for up to 150 days under section 122 of the US Trade Act of 1974, used for balance of payments problems. Congress must act to extend it. The US applied 10 percent from 24 Feb to 24 Jul 2026. (https://krystal7.com/glossary#section-122-surcharge)
- **Section 301 tariff**: A US duty that the US Trade Representative imposes under section 301 of the Trade Act of 1974 after finding a foreign country's practice unreasonable or discriminatory. From 24 Jul 2026 it applies at 10 percent to most Indian goods. (https://krystal7.com/glossary#section-301-tariff)
- **Section 232 tariff**: A US duty imposed under section 232 of the Trade Expansion Act of 1962 on imports that threaten US national security, such as steel, aluminium, copper, vehicles and patented pharmaceuticals. These duties survived the IEEPA ruling and do not stack with the Section 122 surcharge. (https://krystal7.com/glossary#section-232-tariff)
- **Importer of record (IOR)**: The party that files the US customs entry, owes the duty and can claim any refund. In most US parent and Indian subsidiary set ups the parent is the importer of record, so US tariffs fall on the parent unless contract terms pass them back. (https://krystal7.com/glossary#importer-of-record)
- **Arm's Length Price (ALP)**: The price at which a transaction would be carried out between independent parties in comparable circumstances. Indian transfer pricing law, now in sections 161 to 173 of the Income Tax Act, 2025 and earlier in sections 92 to 92F of the 1961 Act, requires international transactions between associated enterprises to be priced at ALP and benchmarked. (https://krystal7.com/glossary#arm-s-length-price)

## Frequently Asked Questions

### What is the India US trade deal of 2026?

It is a joint statement of 6 Feb 2026 that sets a framework for an India US Interim Agreement on reciprocal trade. The US said it would apply an 18 percent reciprocal tariff to Indian goods. India said it would cut tariffs on US industrial goods and many farm products. On 23 Oct 2026 the Interim Agreement is not yet signed.

### What tariff does the US charge on Indian goods today?

From 12:01 a.m. on 24 Jul 2026, most Indian goods pay normal US duty plus a 10 percent Section 301 tariff. Products in the Section 301 annexes are exempt. Steel, aluminium, copper, vehicles and patented pharmaceuticals pay Section 232 duties instead. Check the HTSUS line for each product with the importer of record's customs broker.

### When was the extra 25 percent tariff on India removed?

Executive Order 14384 of 6 Feb 2026 removed the extra 25 percent duty that EO 14329 had imposed over Russian oil. The removal applies to Indian goods entered from 12:01 a.m. EST on 7 Feb 2026. The order lets the US reconsider if India resumes buying Russian oil.

### Did the 18 percent tariff on India ever apply?

The joint statement said the US would apply 18 percent under EO 14257. On 20 Feb 2026 the Supreme Court held that IEEPA does not authorise tariffs, and EO 14389 ended the IEEPA duties. We found no order applying 18 percent before then. A 10 percent Section 122 surcharge followed from 24 Feb 2026.

### Is the India US Interim Agreement in force?

No. On 28 Sep 2026 India's Commerce Ministry announced a visit by Minister Piyush Goyal to the US to finalise the interim deal. India's tariff cuts on US goods do not apply until the agreement is concluded and Indian customs notifies them.

### Which Indian sectors gained most from the framework?

Labour intensive goods gained most because they paid the full 50 percent in late 2025. These include textiles and apparel, leather and footwear, gems and jewellery, home decor, toys, chemicals, plastics and machinery. The framework also promised zero reciprocal tariff on generic pharmaceuticals, gems and diamonds and aircraft parts once the Interim Agreement is concluded.

### Does the US tariff apply to Indian IT and software services?

No. US tariffs apply to imported goods at the border. Software development, IT enabled services and back office work from an Indian subsidiary carry no US tariff. They still need an EDF for services under FEMA 23(R)/2026-RB, transfer pricing at arm's length, and GST zero rating conditions.

### Who pays the US tariff when an Indian subsidiary ships to its US parent?

The importer of record pays it. In most groups the US parent buys on FOB or FCA terms and files the US entry, so the duty is its cost. If the Indian subsidiary sells on DDP terms, it becomes the importer of record and pays the duty and handles any refund.

### Can a US parent ask its Indian subsidiary to cut prices because of tariffs?

It can ask, but the price must stay at arm's length under sections 161 to 173 of the Income Tax Act, 2025. A cost plus manufacturer rarely bears a customer's import duty. A cut without third party evidence invites an adjustment, tax at 25.168 percent under section 200 and a possible secondary adjustment.

### How do I claim a refund of IEEPA tariffs?

The importer of record files a CAPE declaration in CBP's ACE portal, directly or through a licensed customs broker. CBP pays refunds by ACH. The refund process follows the Supreme Court ruling of 20 Feb 2026 and Court of International Trade orders. Section 232 and Section 301 duties are not refundable under it.

### What is the Section 122 surcharge?

It is a temporary US import duty under section 122 of the Trade Act of 1974. The US applied 10 percent from 24 Feb 2026 to 24 Jul 2026, the 150 day maximum without Congress. It did not apply to Section 232 goods, pharmaceuticals, energy or certain electronics. It expired when the Section 301 tariff started.

### Does the India US deal change Indian customs duty on imports from the US parent?

Not yet. India's commitment to cut tariffs on US industrial goods depends on the Interim Agreement. We found no CBIC notification giving effect to it by 23 Oct 2026. A US parent shipping components to its Indian subsidiary still pays India's standard basic customs duty and IGST.

### What FEMA rule applies if we cut the export price after shipment?

From 1 Oct 2026, regulation 6 of FEMA 23(R)/2026-RB lets the AD bank allow a reduction in export value on reasons. A declaration is enough up to INR 10,00,000 per shipping bill. Full or reduced value must be realised within nine months of shipment.

### Could the US reimpose the Russia oil tariff on India?

Yes. EO 14384 makes the Commerce Secretary monitor whether India resumes direct or indirect Russian oil imports. If it does, the President may take further action, including reimposing the duty. EO 14436 of 16 Oct 2026 also created 100 percent duty powers against large Russian oil buyers, waived for now.

### Does the trade deal affect the India US tax treaty?

No. The framework covers tariffs, non tariff barriers, digital trade and economic security. It does not amend the India US Double Taxation Avoidance Agreement (DTAA), withholding rates or permanent establishment rules. See our guide to the [India US DTAA](/insights/india-us-dtaa-for-companies) for treaty rates on dividends, interest and royalties.

## Sources

- The White House, United States India Joint Statement, 6 Feb 2026, https://www.whitehouse.gov/briefings-statements/2026/02/united-states-india-joint-statement/
- The White House, Fact Sheet on the United States and India trade deal, 9 Feb 2026, https://www.whitehouse.gov/fact-sheets/2026/02/fact-sheet-the-united-states-and-india-announce-historic-trade-deal/
- Ministry of Commerce and Industry (PIB), United States India Joint Statement, release 2224783, 7 Feb 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2224783&reg=3&lang=2
- Ministry of Commerce and Industry, United States India Joint Statement (PDF), 7 Feb 2026, https://www.commerce.gov.in/files/2026-02/UNITED%20STATES-INDIA%20JOINT%20STATEMENT%2007.02.2026.pdf
- PIB Research, note on the India US trade framework and export sectors, 9 Feb 2026, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/feb/doc202629783101.pdf
- USTR, Ambassador Greer statement on the joint statement with India, 6 Feb 2026, https://ustr.gov/about/policy-offices/press-office/press-releases/2026/february/ambassador-greer-issues-statement-joint-statement-trade-deal-india
- Federal Register, Executive Order 14384, Modifying Duties to Address Threats by the Government of the Russian Federation, 6 Feb 2026, 91 FR 6501, https://www.federalregister.gov/documents/2026/02/11/2026-02818/modifying-duties-to-address-threats-to-the-united-states-by-the-government-of-the-russian-federation
- Federal Register, Executive Order 14257 on reciprocal tariffs, 2 Apr 2025, https://public-inspection.federalregister.gov/2025-06063.pdf
- Federal Register, Modifying Reciprocal Tariff Rates to Reflect Trading Partner Retaliation and Alignment, 9 Apr 2025, https://www.federalregister.gov/documents/2025/04/15/2025-06462/modifying-reciprocal-tariff-rates-to-reflect-trading-partner-retaliation-and-alignment
- Federal Register, Executive Order 14326, Further Modifying the Reciprocal Tariff Rates, 31 Jul 2025, https://www.federalregister.gov/documents/2025/08/06/2025-15010/further-modifying-the-reciprocal-tariff-rates
- Federal Register (CBP), Notice of implementation of additional duties on products of India under EO 14329, 27 Aug 2025, https://www.federalregister.gov/documents/2025/08/27/2025-16419/notice-of-implementation-of-additional-duties-on-products-of-india-pursuant-to-the-presidents
- The White House, Executive Order 14389, Ending Certain Tariff Actions, 20 Feb 2026, https://www.whitehouse.gov/presidential-actions/2026/02/ending-certain-tariff-actions/
- The White House, Proclamation imposing a temporary import surcharge under section 122, 20 Feb 2026, https://www.whitehouse.gov/presidential-actions/2026/02/imposing-a-temporary-import-surcharge-to-address-fundamental-international-payments-problems/
- Federal Register (CBP), Court ordered refunds under IEEPA, information collection notice, 8 Jul 2026, https://www.federalregister.gov/documents/2026/07/08/2026-13771/agency-information-collection-activities-extension-court-ordered-refunds-under-the-international
- USTR, Section 301 investigations on structural excess capacity, 11 Mar 2026, https://ustr.gov/about/policy-offices/press-office/press-releases/2026/march/ustr-initiates-section-301-investigations-relating-structural-excess-capacity-and-production
- USTR, Initiation notice, structural excess capacity investigations, 11 Mar 2026, https://ustr.gov/sites/default/files/files/Press/Releases/2026/USTR%20301%20FRN%20Industrial%20Excess%20Capacity%20Final.pdf
- USTR, Notice of action in the forced labour Section 301 investigations, 23 Jul 2026, https://ustr.gov/sites/default/files/files/Press/Releases/2026/FLIP%20301%20Investigation%20Final%20Action%20FRN%207-23-26%20FINAL.pdf
- Federal Register, Presidential memorandum to the US Trade Representative on Section 301 actions, 23 Jul 2026, https://www.federalregister.gov/documents/full_text/html/2026/07/28/2026-15274.html
- The White House, Fact Sheet on steel, aluminium and copper tariffs, 2 Apr 2026, https://www.whitehouse.gov/fact-sheets/2026/04/fact-sheet-president-donald-j-trump-strengthens-tariffs-on-steel-aluminum-and-copper-imports/
- The White House, Proclamation adjusting imports of pharmaceuticals and pharmaceutical ingredients, 2 Apr 2026, https://www.whitehouse.gov/presidential-actions/2026/04/adjusting-imports-of-pharmaceuticals-and-pharmaceutical-ingredients-into-the-united-states/
- Federal Register, Executive Order 14436, Implementing the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, 16 Oct 2026, https://www.federalregister.gov/documents/2026/10/21/2026-21599/implementing-the-lindsey-o-graham-sanctioning-russia-and-iran-act-of-2026
- USTR, Ambassador Greer to travel to India and Uzbekistan, 21 Jun 2026, https://ustr.gov/about/policy-offices/press-office/press-releases/2026/june/ambassador-greer-travel-india-and-uzbekistan
- Ministry of Commerce and Industry (PIB), Minister Piyush Goyal to visit the United States, 28 Sep 2026, https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2316127&amp=&reg=3&amp=&lang=1
- USTR, Presidential Tariff Actions, accessed 23 Oct 2026, https://ustr.gov/trade-topics/presidential-tariff-actions
- USTR, Fact Sheet on the Section 301 action against 60 economies that failed to ban forced labour imports, Jul 2026, https://ustr.gov/about/policy-offices/press-office/fact-sheets/2026/july/fact-sheet-ustr-section-301-action-response-failure-60-economies-ban-imports-produced-forced-labor
- Federal Register, Notice of actions in Section 301 forced labour investigations, 28 Jul 2026, https://www.federalregister.gov/documents/full_text/html/2026/07/28/2026-15181.html
- The White House, Proclamation further adjusting the tariff regimes for aluminium, steel and copper, 1 Jun 2026, https://www.whitehouse.gov/presidential-actions/2026/06/further-adjusting-the-tariff-regimes-for-imports-of-aluminum-steel-and-copper/
- Income Tax Department, Section 170 of the Income Tax Act, 2025 (secondary adjustment in certain cases), https://www.incometaxindia.gov.in/w/section-170-83
- Reserve Bank of India, Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, FEMA 23(R)/2026-RB, amended to 22 Sep 2026, https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=13277

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