From UPSC perspective, the following things are important :
Prelims level : Various thresholds for digital tax
Mains level : Paper 3- Rules for digital tax
- Starting April 2022, overseas entities that don’t have a physical presence in India but derive significant financial benefit from Indian customers will come under the Indian tax net.
- While the main legal provision was introduced in 2018, the revenue department notified the thresholds for the purposes of significant economic presence (SEP) on May 3.
- The concept was introduced via Finance Act, 2018, to enlarge the scope of income of non-residents that accrues or arises in India, by establishing a “business connection” of the foreign entities.
- The idea is to tax profits of those online and offline businesses that don’t have a physical presence in India but derive significant economic value from the country.
- Only those entities will get impacted by the SEP provisions who come from non-treaty jurisdictions.
- That’s because the treaties specify non-resident entities will come under the tax net only if they have a permanent establishment in India.
- India currently has a Double Taxation Avoidance Agreement with 97 countries.
- Transaction Threshold: Any non-resident whose revenue exceeds Rs 2 crore for transactions in respect of goods, services or property with any person in India. This will include transactions on the download of data or software.
- User Threshold: Any entity that systematically and continuously does business with more than 3 lakh users in India.
Revision of this topic further: