![]() Income tax is levied on NRs based on the location of the source of incomes, which includes business connections through Permanent Establishment (PE) in India. Income Tax for SEP’s Application on NRs Operating in India: BEPS addresses tax planning strategies used by NRs to exploit gaps and mismatches in tax rules to avoid income tax in India. The concept of SEP was introduced through the Finance Act, 2018, and borrowed from the Base Erosion and Profit Shifting (BEPS) Action Plan 1 of the Organization for Economic Co-operation and Development (OECD). However, with advancements in information technology and the emergence of new business models without physical presence, the concept of business connection needed expansion. Incomes accruing or arising to NRs through business connections were initially restricted to physical presence under Section 9(1)(i) of the Income Tax Act, 1961. India has been following a source-based income tax system for NRs, where income tax is levied at the originating point or source. Introduction of SEP’s Application on NRs Operating in India in 2018: ![]() Equalization Levy: To address revenue leakage, the government introduced Equalization Levy (EL) in 2016, which imposes taxes on online and digital advertisements, as well as e-commerce supplies of goods and services. ![]() Revenue Leakage: The Indian Government aims to prevent revenue leakage caused by digital and e-commerce business activities conducted by NRs with resident customers in India.Ĥ. Evolving Business Models: New business models continue to emerge worldwide, challenging traditional tax laws that rely on physical presence.ģ. Different Business Models: Over the past decade, various business models have emerged, and digitization and e-commerce have become the latest trends worldwide.Ģ. Reasons for SEP’s Application on NRs Operating in India:ġ. The application of SEP on NRs in India was introduced in 2018 as a response to the changing business landscape globally, with increasing digitization and e-commerce becoming prevalent. Significant Economic Presence (SEP) is a concept that has been applied to Non-Residents (NRs) operating in India to address the challenges posed by digital and e-commerce business models. Expert insights for NRs operating in India. Stay informed about legal obligations, special roles for professionals, and the government’s challenges in managing income tax leakages in the digital and e-commerce sectors. Understand the impact of SEP on digital and e-commerce business models, reasons for its application, income tax implications, criteria, challenges, and immunity through Double Taxation Avoidance Agreements (DTAA). You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.Explore 25 FAQs on Significant Economic Presence (SEP) for Non-Residents in India. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. ![]() The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. They do noy constitute legal advice or legal opinions. The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Tax Residency Certificate – Tax Residency certificate self – declaration ![]()
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