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CBDT notifies thresholds for determining ‘Significant Economic Presence’ in India

The concept of SEP was introduced under Income-tax Act, 1961 (“the Act”) vide Finance Act, 2018, by way of insertion of Explanation 2A to section 9 of the Act, to expand the scope of the term ‘Business Connection’ and includes:
(a) transaction in respect of any goods, services or property carried out by a non-resident 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 previous year exceeds such amount as may be prescribed; or (b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed. It was further provided that the transactions or activities shall constitute significant economic presence in India, whether: (i) the agreement for such transactions or activities is entered in India; or (ii) the non-resident has a residence or place of business in India; or (iii) the non-resident renders services in India. The above-mentioned Explanation was inserted primarily for establishing Business Connection in India for Multinational entities carrying out business operations through digital means, without having any physical presence in India. However, its enforceability was deferred time and again as the discussion on this issue was ongoing under G20 – OECD BEPS project.
Read about the implications of the CBDT notification that has prescribed the ‘revenue’ and ‘users’ threshold for the purpose of determining SEP.


Image Credits: Photo by Markus Winkler from Pexels