Tax Department has notified a revenue threshold of INR 20 Million (USD ~ 270,000) or user base of 300,000 users for invoking significant economic presence. This will become effective from the financial year 1 April 2021 onwards.
Significant economic presence as a concept was proposed by OECD for taxing digital economies. It is based on Nexus based taxing rights in contrast to location-based taxing rights which is currently in place.
Indian tax authorities expanded the term business connection by including significant economic presence in 2018-19. However, the threshold for revenue and number of users is notified in current year. Any entity which crosses this user base or revenue would have to pay taxes on the revenue earned from India.
OECD countries are yet to arrive at consensus on SEP. Hence these changes are not likely to impact countries where India has entered into double taxation agreement. Those will be continued to be governed as per permanent establishment regulations as outlined in the respective DTAAs.
The Non resident entities coming under the ambit of SEP will attract the tax liability of 40% plus the applicable surcharge and 4% E.cess on tax and surcharge.
If you have any questions, please contact V Raghavendran. [email protected]