It is imperative to note that the threshold has been kept quite low and it may bring many non-residents under the ambit of SEP. However, SEP provisions would have a limited impact on foreign MNEs as non-resident are still eligible to get treaty protection owing to the restrictive definition of permanent establishment (PE) for taxing business profits of a non-resident.
However, non-residents from non-treaty jurisdictions may have a huge impact as the limits are very small. Similarly, Indian companies would also have to more vigilant while applying withholding tax in light of these provisions. SEP provisions provide that revenue attributable to India would be liable to tax in India. Indian Companies making payments would not be able to determine the revenue attributable to India, so they may have to apply 40% (plus applicable surcharge and cess) on the gross payments or ask the non-resident to get a lower withholding tax order from the tax department. Similarly, in a case where Indian companies are granting exemption under the Indian Income-tax Act (even for Treaty Countries) would have to check the applicability of SEP.
These provisions are applicable from 1 April 2021, so in a sense, the same can be said to be retrospective. Companies would have to check payments made during April 2021 to see if these provisions would have an impact.