Budget 2025: Key Amendments to Section 9 for Non-Residents

Last updated: 01 February 2025

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The Indian government is proposing amendments to Section 9 of the Act, specifically concerning non-residents. The changes aim to harmonise the applicability of 'significant economic presence' with the existing 'business connection' rules. Previously, income from purchasing goods in India for export was excluded from being deemed to accrue or arise in India. However, the introduction of 'significant economic presence' rules raised concerns that this exclusion might no longer apply. The proposed amendment clarifies that activities confined to purchasing goods in India for export will not constitute a significant economic presence, aligning it with the original intent of the business connection provisions.

Harmonisation of Significant Economic Presence applicability with Business Connection

Section 9 of the Act provides for income which shall be deemed to accrue or arise in India. Clause (i) of section 9, inter alia, provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India.

Budget 2025: Section 9 Amendments for Non-Residents

2. Clause (b) of Explanation 1 to clause (i) of sub-section (1) of section 9 provides that in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export.

3. Explanation 2A to clause (i) of sub-section (1) of section 9, inter alia, provides that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose shall inter alia mean transaction in respect of any goods carried out by a non-resident with any person in India.

4. Suggestions have been received that owing to definition of significant economic presence provided in Explanation 2A, the specific exclusion provided in the case of a non-resident, for income arising through or from operations which are confined to the purchase of goods in India for the purpose of export may be denied and such income may also be treated as income deemed to accrue or arise in India.

5. It is, therefore, proposed to amend the Explanation 2A of section 9 so that the transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence of such non-resident in India. This will bring it in coherence with the Explanation 1 to clause (i) of sub-section (1) of section 9 for business connection.

6. These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

[Clause 4]

FAQ :

The amendments aim to harmonise the 'significant economic presence' rules with the existing 'business connection' provisions for non-residents, ensuring clarity on income deemed to accrue or arise in India.

Previously, income arising from operations confined to the purchase of goods in India for the purpose of export was not deemed to accrue or arise in India for non-residents.

Changes are proposed because the definition of 'significant economic presence' might have inadvertently removed the specific exclusion for income from purchasing goods in India for export.

The amendment will ensure that transactions or activities of a non-resident in India confined to the purchase of goods for export will not be considered a 'significant economic presence'.

These amendments will take effect from 1st April 2026, applying to the assessment year 2026-27 and subsequent assessment years.

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