Non Residents Will Need To Pay Taxes In India If This Happens

By Malvika Gurung Last updated May 8, 2021

Non-residents will have to pay taxes for doing business in India, despite not having a physical presence in the country.

The non-residents with a digital business presence in India but not necessarily a physical one are now taxable under the domestic law in India, for conducting any transaction value above Rs 2 crore.

The Central Board of Direct Taxes (CBDT) has notified new rules/provisions applicable on non-residents operating their businesses in India, including digital ones.

Non-Residents Will Now be Taxable

As per the new rules notified by CBDT, any transaction exceeding Rs 2 crore (or ceiling $27,100) with respect to goods, services or property, conducted by non-residents’ businesses in India, including provision of download of data or software in India, will attract tax.

In 2018, the provisions of Significant Economic Presence (SEP) were introduced in the legislation, to keep a check on carrying out taxation of non-residents operating digitized businesses in India, without having a physical presence here.

According to these provisions, ‘non-residents doing business in India will also attract tax, if the number of users with whom systematic and continuous business activities are solicited (or who are engaged in interactions) exceeds 3 lakhs’, states FreePressJournal.

New Provisions to Come into Effect in FY22

The provisions of SEP were amended with the Finance Act, 2020, post which SEP was defined as the transaction wrt any goods, services or property carried out by a Non Residents Will Need To Pay Taxes In India If This Happens
with any person 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 year exceeds a threshold or systematic and continuous soliciting of business activities or engaging in interaction with a defined number of users in India.

These new tax provisions for non-residents will come into effect in 2021-22.

PwC stated that the Central Government has clarified that a non-resident’s economic presence in India is no longer only limited to their physical presence in the country but also to a virtual establishment.