In what could be a breather for global companies like Google, Facebook, Netflix, Amazon, among others, India has decided to defer the deadline for taxing Indian income of multinationals, instead the government has brought in new nexus rules, which are now proposed to be applicable from 1 April 2020.

North Block, through the Budget amended Section 9 of the Income-Tax Act and introduced an enabling provision to tax Indian income of global companies with “significant economic presence” in India, only once the global framework gets finalised by G-20.

In the proposed nexus rules, the government says that the revenue arising from the targeted advertisements to Indian customers, revenue from the sale of data collected from India or revenue arising from the sale of goods and services using data collected from India shall be brought under tax net in accordance with the domestic tax provisions.

The government had introduced the provisions first, bringing in the concept of significant economic presence (SEP) in line with its plan to tax digital companies, in the Finance Act, 2018.

The government had brought in the concept to tax Indian income of such companies which are carrying out business activities or engaging in interaction with users which have been prescribed in India through digital means.

This provision was earlier proposed to be effective from financial year 2018-19, but the government did not frame the thresholds and rules, and now, with the enabling provision it will be applicable from FY2021-22 after a global consensus, which is likely by end of 2020.

By amending the I-T Act, India has kept itself ready and prepared to adopt the global framework on significant economic presence and attribution of income, as soon as it gets finalised.

The enabling provision has been introduced by an explanation (3A) in Section 9 of the income tax Act on “income attributable to operations carried out in India”.

Once the rules are adopted, India will get the right to tax Indian income of global companies which are engaged in advertising, streaming or selling goods and services to an Indian entity, which according to the tax rules, can be both individuals or corporate.

Tax department said that the revenue arising from targeted advertisements to Indian customers, revenue from the sale of data collected from India or revenue arising from the sale of goods and services using data collected from India is huge and India should get the right to tax in accordance with the domestic tax provisions, thus the new nexus rules come in play.