India Champions Digital Tax Reform to Adapt to Global Economy

India has emerged as a global leader in adapting tax laws to the digital economy, according to statements made by a senior official from the Central Board of Direct Taxes (CBDT). Varunesh Mishra, Joint Commissioner of Income Tax, highlighted key reforms that include the introduction of the Significant Economic Presence (SEP) framework, the implementation of Tax Deducted at Source (TDS) on e-commerce transactions, and a comprehensive structure for taxing virtual digital assets. These initiatives aim to ensure fair and transparent revenue distribution in a rapidly evolving digital landscape.

During the International Tax Conference 2025 in New Delhi, Mishra emphasized the importance of adapting taxation to the challenges posed by borderless digital businesses. “The digital economy is now all-pervasive,” he stated, noting that entities can operate across borders without any physical presence, complicating the determination of where profits should be taxed.

Pioneering Digital Tax Reforms

India’s proactive approach to tax reform began in 2018 with the introduction of SEP, which was refined in 2020 and operationalized in 2021. This measure allows India to tax profits from foreign digital entities based on their economic activity and user base within the country, even in the absence of a physical office. Mishra also mentioned the Equalization Levy, originally intended to tax cross-border digital transactions, which has been withdrawn as India aligns with global frameworks such as the OECD’s Pillar One and Pillar Two initiatives.

On the domestic front, significant steps include the introduction of TDS on e-commerce transactions under Section 194-O. This ensures that digital platforms contribute fairly to India’s tax ecosystem. Furthermore, in 2022, India implemented a taxation framework for virtual digital assets (VDAs), which encompasses cryptocurrencies and non-fungible tokens (NFTs). This framework imposes a 30% tax on income from the transfer of such assets and a 1% TDS on payments related to their sale, positioning India among the first major economies to provide a comprehensive regulation of digital asset taxation.

Ongoing Challenges and Global Cooperation

Despite these advancements, Mishra acknowledged ongoing challenges, particularly regarding profit attribution across jurisdictions. “We must ensure our tax policies encourage innovation while maintaining fairness and equity,” he remarked. As global cooperation through the OECD progresses, India is striving to balance innovation with accountability, setting a precedent for emerging economies navigating the complexities of digital taxation.

The broader economic context was underscored by Mukul Bagla, Chair of the Direct Tax Committee at the PHDCCI, who noted that shifts in global trade, manufacturing, and geopolitics have positioned India as a central player in international tax discussions. Bagla highlighted the government’s efforts to streamline tax laws, reduce litigation, and improve dispute resolution processes. These initiatives align with India’s ambition to become a developed, innovation-driven economy by 2047.

The conference featured expert-led discussions on international taxation, Base Erosion and Profit Shifting (BEPS) 2.0, transfer pricing mechanisms, cross-border tax challenges, and emerging trends in global tax governance. As India continues to lead in digital tax reforms, its role in shaping future tax policies is expected to grow in significance, influencing how nations approach the taxation of the digital economy.