"The first day of talks got stuck on the issue of FDI in the insurance sector. EU is saying that they cannot proceed without India allowing 49 per cent FDI in the insurance sector," a source said.
The Indian side, however, has made it clear they cannot move on this front without the approval of Parliament.
The Insurance Laws (Amendment) Bill 2008 that seeks to raise FDI cap from 26 per cent to 49 per cent is pending before Parliament.
The Indian side also insisted on grant of data secure status to New Delhi, sources said.
"The EU side would have to take a final call on all vexed issues if they want to continue the FTA talks," the source added.
Although the technical level talks between the two sides started on Monday, the three-day deliberations between the chief negotiators started today.
India and the 27-nation bloc have been negotiating a Broad-based Trade and Investment Agreement (BTIA) since June 2007, but a breakthrough has not yet been achieved due to strong differences on several of the issues.
Besides significant duty cuts in automobiles, EU is pressing for tax reduction in wines and spirits and dairy products, a hike in FDI cap in the insurance sector and a strong intellectual property regime.
On the other hand, India wants liberalised visa norms for its professionals, data secure status and market access in services and pharmaceuticals sector.
India is among nations not considered data secure by the EU which obstructs flow of sensitive data, such as intellectual property or patient information under data protection laws in the EU.