Taxation of non-residents through a significant economic presence

Widened scope under the Indian Income tax law

Significant Economic Presence (SEP)

Scope, applicability and safeguards

  • SEP introduced in the Income-Tax Act, 1961 (‘ITA’) from April 1, 2018
  • It expands the scope of income of a non-resident which accrues or arises in India that results in a ‘business connection’ in India for that non-resident. The resulting income, attributable to the SEP, is taxable
    in India.
  • SEP is defined to mean:
    Transaction in respect of any goods, services or property carried out by a non-resident in India, including the provision of download of data or software in India, subject to payment threshold to be
    prescribed; or
    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

Finance Act 2018 expanded the scope under domestic law of the term - ‘Business Connection’ to enable taxation of non-residents having a Significant Economic Presence (SEP) in India.

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