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Provision to Tax Income Arising due to Significant Economic Presence in India is deferred
[Applicable from Assessment Year 2022-23]

Section 9 of the Act deals with the incomes which are deemed to accrue or arise in India. Section 9(1) creates a legal fiction to tax certain incomes by deeming them as accruing or arising in India. Section 9(1)(i) deems the following income to accrue or arise in India:

  1. income accruing or arising, whether directly or indirectly, through or from any business connection in India;

  2. income accruing or arising through or from any property in India;

  3. income accruing or arising through or from any asset or source of income in India; or

  4. income accruing or arising through the transfer of a capital asset situate in India.

The Finance Act, 2018 inserted an Explanation 2A to Section 9(1)(i) to provide that the ‘Significant Economic Presence’ of a non-resident in India shall constitute ‘business connection’.

Significant Economic Presence means:

  1. 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 such amount as may be prescribed;

  2. systematic and continuous soliciting of business activities or engaging in interaction with such number of users, as may be prescribed, in India through digital means.

Discussion on significant economic presence is still going on in G20-OECD BEPS project, report thereof is expected by end of December 2020. Therefore, the Department hasn’t yet prescribed the threshold for the aggregate amount of payments arising from the specified transactions and for the number of users. Consequently, the Finance Bill, 2020 aims to defer the applicability of significant economic presence to Assessment Year 2022-23. Therefore, the foreign companies who do not have a business connection or PE in India will continue to enjoy non-taxability of Income arising even out of significant economic presence in India until Assessment Year 2021-22.
 
Amendment on Attribution of Profits to PE (Permanent Establishment) to be within the scope of Safe Harbour Rules (SHR) and Advance Pricing Agreement (APA) from Assessment Year 2020-21 Tax Amendments in Finance Bill 2020 Advertisement Income generated by Targeting Indian Customers shall be Taxable in India from Assessment Year 2021-22
Income Tax Slab for Financial Year 2020-21 (AY : 2021-22)

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