Significant Economic Presence: Changing The Conventional Taxation Systems

Owing to the advent of digitalization, India adopted the concept of 'Significant Economic Presence' (SEP) through the Finance Act, 2018. It expanded the scope of income for a non-resident doing business with India. The provisions expand the scope of 'business connection' {similar to Permanent Establishment (PE)} for non-resident, which may result in higher tax liability and compliances for non-residents. The tax rate applicable would be 40% (plus applicable surcharge and cess). A SEP is defined to include:

• 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