Significant Economic Presence Redefined: No SEP for Export Procurement under Finance Act 2025:

1.  Introduction:

India introduced the concept of Significant Economic Presence (SEP) in the Finance Act, 2018, expanding the definition of “business connection” under Section 9 of the Income-tax Act.

The intent was clear: to bring within India’s tax net digital and remote business models where foreign enterprises earn from Indian customers without a physical presence.

2.  The Amendment in Finance Act 2025:

Section 9(1)(i), Explanation 2A (SEP) has been amended to provide that “transactions confined to the purchase of goods in India for the purpose of export shall not constitute Significant Economic Presence.”

3.  Why was this needed?

Ease of Doing Business: Global traders and logistics companies flagged the risk of unnecessary compliance and litigation, which could make India an unattractive sourcing hub.

4.  Documents required for proving that no local transactions have taken place:

Invoices & Purchase Orders – showing foreign destination.

Shipping & Customs Documents – Bills of Lading, Shipping Bills, Export General Manifests.

Bank Realisation Certificates (BRC) / FIRC – proving export proceeds received in foreign currency.

Operational Records – Books of accounts, logistics contracts, correspondence, and warehouse records showing that no goods were sold in India.

5.  Conclusion:

The Finance Act, 2025 brings welcome clarity by ensuring that procurement for export does not create a taxable nexus in India.