New Delhi: India has proposed to tighten the tax and reporting framework for the digital entities by sharpening the definition of significant economic presence (SEP), mandating localised electronic record-keeping for professionals, and formally bringing the central bank digital currency (CBDC) within the income-tax framework.
The government has kept the ₹2-crore transactions threshold for taxing foreign digital companies and clarified that such entities must have at least 300,000 users. The draft rules bring online activities such as software and data downloads within the tax net.
The thresholds will be calculated each tax year to reduce ambiguity as India moves to the Income Tax Act, 2025, slated to come into effect from April 1.
The draft rules, released on Saturday, are aligned with the new I-T law.
The Central Board of Direct Taxes (CBDT) will hold further consultations with industry next week before notifying the final rules.
The new I-T Act which was enacted to replace the six-decade-old Income-tax Act, 1961, and simplify and modernise India’s direct tax framework by removing redundant provisions, consolidating amendments made over the years, using clearer language, and reducing litigation, while retaining the existing tax policy intent.
The draft income tax rules require professionals opting for presumptive taxation and those in specified fields, including legal, medical, engineering, accountancy, IT and consultancy, to maintain electronic books of account accessible in India, with daily back-ups stored on India-based servers.
“This is in line with similar requirements for companies under the Companies Act, 2013,” said Richa Sahwney, partner at Grant Thornton, adding that it would ensure updated data is readily available to tax authorities.
The rules expand recognised electronic payment modes to include the CBDC and propose mandatory accountant-certified filings for claiming Foreign Tax Credit.
“By formally recognising CBDC as an accepted electronic payment mode, the draft rules provide a regulatory foundation for integrating CBDC into existing financial systems,” said Sandeep Jhunjhunwala, partner at Nangia Global Advisors.
Non-residents seeking treaty benefits will be required to furnish a detailed communication address in India, while the draft also introduces a reporting framework for crypto-asset service providers and raises the threshold of transactions for mandatory quoting of PAN (Permanent Account Number).
