Clause 9 Income deemed to accrue or arise in India.
Income Tax Bill, 2025
1. Introduction
This analysis examines the proposed changes in Clause 9 of the Income Tax Bill, 2025, compared to the existing provisions u/ss 9 and 9A of the Income-tax Act, 1961. The provisions deal with income deemed to accrue or arise in India and have significant implications for both residents and non-residents.
2. Objective and Purpose
The primary objectives of these provisions are:
- To define the territorial nexus for taxing income in India
- To establish clear criteria for business connection in India
- To regulate international transactions and prevent tax avoidance
- To provide clarity on taxation of digital economy transactions
3. Key Changes and Analysis
3.1 Structural Changes
- The proposed Bill reorganizes the provisions into more systematic sub-sections (1) to (10)
- Enhanced clarity in the classification of different types of income
- More detailed explanations for various concepts
3.2 Business Connection
Current Provisions:
- Defined through Explanation 2 in Section 9
- Includes traditional business presence concepts Proposed Changes:
- Expanded definition under sub-section (8)
- Specific inclusion of significant economic presence
- Detailed provisions for digital economy transactions
3.3 Digital Economy Provisions
New Additions:
- Comprehensive framework for digital transactions
- Specific provisions for:
- Online advertising targeting Indian customers
- Data collection and monetization
- Digital services
3.4 Investment Fund Management
- Integration of Section 9A provisions
- Modified conditions for eligible investment funds
- Enhanced clarity on fund manager activities
4. Practical Implications
4.1 For Businesses
- Need to reassess digital presence in India
- Review of existing business structures
- Compliance requirements for digital transactions
4.2 For Non-residents
- Enhanced scope of taxable income
- New obligations for digital operations
- Modified criteria for permanent establishment
4.3 For Fund Managers
- Revised operational guidelines
- Modified eligibility criteria
- New compliance requirements
5. Comparative Analysis
5.1 International Perspective
- Alignment with OECD BEPS guidelines
- Compatibility with international tax treaties
- Modern approach to digital economy taxation
5.2 Domestic Law Integration
- Harmony with other provisions of Income Tax Act
- Coordination with foreign exchange regulations
- Integration with digital commerce laws
6. Conclusion
The proposed changes represent a significant modernization of India's international taxation framework, particularly in addressing digital economy challenges while maintaining traditional concepts of business connection.
Full Text:
Clause 9 Income deemed to accrue or arise in India.
Dated: 25-2-2025
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