Amendment to Section-9 w.e.f. Assessment Year 2019-2020 under Income Tax Act.
The following amendments have been made to section 9 with effect from the assessment year
Aligning the scope of “business connection” with modified PE Rule as per Multilateral Instrument (MLI) –
Section 9(1)(i) has been amended to provide that “business connection” shall also include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident. This rule is applicable if the contract is —
in the name of the non-resident; or
for the transfer of the ownership of, or for the granting of the right to use, property owned by that nonresident or that the non-resident has the right to use; or
for the provision of services by that non-resident.
Business connection to include “significant economic presence” –
Section 9(1)(i) has been amended to provide that “significant economic presence” in India shall also constitute “business connection”. For this purpose, “significant economic presence” shall mean —
any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or
systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.
The following points should be noted —
Only so much of income as is attributable to above transactions or activities, shall be deemed to accrue or arise in India.
The above transactions or activities shall constitute significant economic presence in India, whether or not, —
the agreement for such transactions or activities is entered in India; or
the non-resident has a residence or place of business in India; or
the non-resident renders services in India.
Aforesaid conditions are mutually exclusive.
The threshold of “revenue” and the “users” in India will be decided by the Government after consultation with the stakeholders.
Unless corresponding modifications to PE rules are made in the DTAAs, the cross border business profits will continue to be taxed as per the existing treaty rules.
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