India has taken a proactive stance in reforming its tax laws to meet the challenges posed by the rapidly expanding digital economy, said Varunesh Mishra, Joint Commissioner of Income Tax in the Central Board of Direct Taxes (CBDT). Speaking at the International Tax Conference 2025 in New Delhi, Mishra highlighted how India has emerged as a global frontrunner in creating fair, transparent, and equitable taxation frameworks for borderless digital businesses.
"The digital economy is now all-pervasive," Mishra said. "Entities can operate across borders without any physical footprint, making it difficult to determine where profits should be taxed. India recognized this shift early and acted decisively."
India's Early Recognition of Digital Tax Challenges
India's journey toward digital-era taxation began in 2018 with the introduction of the Significant Economic Presence (SEP) concept, designed to tax profits of foreign digital entities based on their economic activity and user engagement within India, even if they lacked a physical office. This framework was further refined in 2020 and became operational in 2021, setting a global benchmark for digital tax policy.
Equalization Levy and Alignment with Global Standards
Mishra also noted that the Equalization Levy, introduced to tax cross-border digital transactions, served as an interim mechanism until India could align with international standards like the OECD's Pillar One and Pillar Two initiatives. This transition reflects India's commitment to global cooperation and fair profit allocation in the digital economy.
Domestic Tax Reforms for a Digital India
On the domestic front, Mishra emphasized India's forward-looking approach through measures like:
- Tax Deducted at Source (TDS) on e-commerce transactions under Section 194-O, ensuring that online platforms contribute equitably to India's tax system.
- The taxation of Virtual Digital Assets (VDAs) - including cryptocurrencies and NFTs - introduced in 2022, which imposes a 30% tax on income from transfers and a 1% TDS on payments. This made India one of the first major economies to comprehensively regulate digital asset taxation.
Balancing Innovation and Fairness
While India continues to lead, Mishra cautioned that key challenges remain, particularly in profit attribution for multinational digital companies operating across multiple jurisdictions.
"We must ensure our tax policies encourage innovation while maintaining fairness and equity," he remarked.
India's Growing Role in Global Tax Discourse
An industry expert at the event, Mr. Bagla, added that shifting global dynamics in trade, manufacturing and geopolitics have positioned India as a central player in the international tax conversation. He lauded the government's efforts to simplify tax laws, reduce litigation, and strengthen dispute resolution, aligning with India's goal of becoming a developed, innovation-driven economy by 2047.
The International Tax Conference 2025 featured deliberations on BEPS 2.0, transfer pricing, cross-border taxation and emerging global tax governance trends, showcasing India's leadership in shaping the future of international taxation.
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