New Delhi: Non-resident Indians (NRI) in transactions with those in India will be liable for tax under the country's law - even if they do not have a physical presence in India and operate digital businesses.
The Central Board of Direct Taxes has notified new rules for operation of business by NRIs under which any transaction over Rs20 million (around $27,100; Dh995,994) in respect of goods, services or property carried out by them with a person in India. This also applies to download of data or software in India.
The new provisions are applicable with effect from Financial Year 2021-22. It had become fully functional now with CBDT notifying the thresholds for triggering SEP and consequently tax liability in India.
The provisions of Significant Economic Presence (SEP) will also apply if the number of users with whom continuous business activities are solicited exceeds Rs300,000. These provisions were introduced as legislation in 2018 with an intent to tax non-residents operating online-based businesses that function without a physical presence. It meant that SEP of a non-resident in India shall constitute a 'business connection' in India.
According to PwC, the Central government has now made it clear that economic presence in India by NRIs is not limited only to the physical presence in India but also includes a virtual establishment. But non-residents could offset the taxability under these provisions by exploring taking relief under Double Taxation Avoidance Agreements.