Digital Tax Threshold Set At 2 Crores And 3 Lakh Users: CBDT

The Equalisation Levy, or digital tax, in India, was recently expanded to include the selling of goods and services in the country by foreign e-commerce companies.

The Central Board of Direct Taxes (CBDT) announced on Monday that the digital tax threshold would be two crores and that non-resident technology firms would be limited to 300,000 users.

They shall come into force with effect from the 1stday of April, 2022. Under new or updated bilateral tax pacts, a revenue threshold of Rs 2 crore and a cap of 300,000 users for non-resident technology firms such as Google, Facebook, and Netflix to pay tax in India.

This is part of the Significant Economic Presence (SEP) concept, which was introduced in the Finance Bill 2018-19 and expanded the definition of a "business connection" to include the provision of data or software downloads if aggregate payments from such transactions surpass a specified sum or if a multinational interacts with a specified number of users.

In a notification released on Monday, the Board added a new clause to the Income Tax Rules, Rule 11UD, where a threshold has been set for the purposes of substantial economic presence in order to enforce the provisions.

"In exercise of the powers conferred by the clause (a) and clause (b) of Explanation 2A to sub-section (1) of section 9 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962," the notification said.

It further stated that "for the purposes of clause (b) of Explanation 2A to clause (i) of sub-section (1) of section 9, the number of users with whom systematic and continuous business activities are solicited or who are engaged interaction shall be three lakhs."

The indirect transfer rules were enacted by the government in response to the Vodafone case, in which the company was accused of evading a large amount of tax during its purchase of Indian shares.

The total amount of payments arising from transactions in respect of any products, services, or property carried out by a non­resident with any individual in India during the previous year, including the provision of data or software download in India, shall be Rs 2 Crores.