The government is currently considering the threshold for establishing significant economic presence of a non-resident in India.
The Centre has collected more than Rs 550 crore in FY18 from the equalisation levy, MoS for finance Shiv Pratap Shukla said in in Parliament on Tuesday. Currently, a 6% tax is charged on consideration exceeding Rs 1 lakh in a year for digital services provided to Indian resident by a firm not having permanent establishment (PE) in the country.
“Further, the introduction of taxation based on significant economic presence is also expected to increase tax collection as it seeks to widen the tax base in India by establishing business connection and charging to tax income earned by digital businesses which operate out of jurisdictions with which India has not entered into a Double Taxation Avoidance Agreement (DTAA),” he said.
The government is currently considering the threshold for establishing significant economic presence of a non-resident in India. However, in respect of digital businesses operating out of jurisdictions with which India has already entered into a DTAA, significant economic presence will only be effective after renegotiation of such DTAA which will be based on international consensus, the Parliament reply said.
“If digital businesses operated by non-residents are structured to artificially avoid establishment of a “business connection” or “permanent establishment” in India, including by way of claiming the activities carried out in India to be preparatory or auxiliary in nature, the GAAR provisions under the I-T Act may become applicable to the income of such digital businesses in India,” he said.