On 3 May 2021, the Central Board of Direct Taxes (CBDT) issued a Notification No.40/2021 which sets the revenue and user thresholds for the application of a new nexus rule for nonresidents in the form of “significant economic presence” (SEP) in India. Accordingly, SEP will apply to nonresident in respect of taxation if revenue and user thresholds is as follows:
- Revenue-linked condition: threshold of INR20 million (US$280,000).
- User-linked condition: threshold of 300,000 Indian users
In case of revenue-linked condition SEP is defined to include any transaction in respect of any goods, services or property carried out by a nonresident with any person in India, including the provision of download of data or software in India, subject to payment threshold to be prescribed. For user-linked condition SEP is defined to include in systematic and continuous soliciting of its business activities or engaging in interaction with users in India exceeds the prescribed amount.
The notification confirms that the SEP concept will apply as from 1 April 2022 (i.e., financial year 2021-22, corresponding to assessment year 2022-23).
