India: Thresholds for significant economic presence; tax treaty rate applicable; tax withholding at source

The KPMG member firm in India has prepared reports on recent tax developments.

The KPMG member firm in India has prepared reports on recent tax developments.

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

  • Thresholds for “significant economic presence”—The Central Board of Direct Taxes (CBDT) issued a notification with new thresholds for the purposes of determining when there is significant economic presence:
    • The amount of aggregate of payments arising from transaction or transactions in respect of any goods, services or property conducted by a non-resident with any person in India, including provision of download of data or software in India during the previous year, is INR 20 million.
    • The number of users with whom systematic and continuous business activities are solicited or who are engaged in interaction is 300,000.

This rule is effective from 1 April 2022 (i.e. Financial Year 2021-22). Read a May 2021 report [PDF 297 KB]

  • Tax treaty rate applies (not tax law rate) for dividend paid to non-resident shareholder—The Kolkata Bench of the Income-tax Appellate Tribunal held that the tax rate applicable on a dividend paid to a non-resident shareholder is the rate provided under the India-Malaysia income tax treaty—and not the rate of the dividend distribution tax under provisions of the Income-tax Act, 1961. The case is: Indian Oil Petronas Pvt. Ltd. Read a May 2021 report [PDF 320 KB]
  • Tax withholding on indirect transfer of shares, retroactive provisions—The Mumbai Bench of the Income-tax Appellate Tribunal addressed the withholding (or “deductibility” as referred to in India) of tax at source under provisions of the Income-tax Act, 1961 on transfer of shares of a Singapore company (with subsidiaries in India) by a UK company to a Mauritian company (the taxpayer) when the transaction was before the legislative change made by the Finance Act, 2012. The tribunal held that for withholding of tax based on an amendment to law that was enacted after the date when the withholding obligations were required to be performed would expect taxpayers to do “the impossible.” The tribunal concluded that the taxpayer was not liable to withhold tax at source at the time of making the payment to the UK company. The case is: WNS Capital Investment Ltd, Mauritius. Read a May 2021 report [PDF 303 KB]


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