India’s Central Board of Direct Taxes (CBDT) is planning to tax foreign business firms having Indian users. The proposal can have significant bearing on the growing trend of crypto and web3 businesses by Indian founders incorporated outside India.
The tax authority has proposed a new form for the filing of income tax return (ITR), which aims to eliminate a series of existing ITR forms and replace them with one common form. The draft of the changes in the ITR form has been put in the public domain for comments and suggestions that can be given up to December 15, 2022.
Besides regular information, the draft form has fields that seek information about businesses based outside India but having a significant user base in the country. This addition to the ITR form which all Indians with taxable income must file assumes significance given the fact that a majority of crypto and web3 companies by Indian promoters are legally instituted outside India while their focus market remains their homeland.
Many of the crypto trading platforms and web3 companies have a significant economic presence in the country but they remain out of the local tax obligations as they are registered abroad. The new ITR form tries to make such people disclose their foreign businesses making economic gains in India.
Besides income tax, their businesses can be subjected to the equalization levy that India introduced in 2016 to make foreign e-commerce platforms and online service providers such as Google and Facebook that make significant gains from the Indian market pay taxes.