Introduction of disclosure requirement related to Significant Economic Presence “SEP” in “ITR”

For non-residents, any income that accrues or arises from a business connection in India is taxable in India. Business connection develop on the carrying out of business operations by a non-resident in India through fixed establishment, physical presence of its employees or agent, etc.

Due to the technology revolution, any entity can carry out its business at any location without its physical presence through digital platforms. To bring such a non-resident under the ambit of Indian tax law, the concept of significant economic presence was introduced in the Finance Act 2018.

The significant economic presence of a Non-Resident “NR” shall be constituted if the Non-Resident has transactions exceeding the following thresholds:

1. Limit of revenue exceeding INR 2 crores for transactions in respect of any goods, services or property with any person in India including provision of download of data or software in India, or
2. Where the “NR” is engaged in soliciting business activities or engaging in interaction with users in India and the number of users exceeds 3 lakh.

A new disclosure requirement has been introduced in terms of providing information for the significant economic presence of NR in India for determining business connections in India. The “NR” is required to input data mentioning (a) the amount of transactions executed as aforesaid and (b) the number of users with whom the NR interacted for business activities.

Additional Resources:

• Alert on Advance Income Tax
• Budget Income Tax Provisions Related to Charitable Trusts and Institutions
• Extension of Timelines for Filing Form 10B, 10BB, and ITR 7
• Introduction of a modified return of Income in ITR and extension of time for filing

Article contributed by Nitin Sahni, Associate Director – Taxation Advisory & Compliance Services, MBG Corporate Services