Lets understand, Why concept of PE is important

Lets understand, Why concept of PE is important

Income Tax

Let’s start with first things first. It’s imperative to understand the basic meaning of term P.E and DTAA to understand the importance of PE in DTAA.


PE stands for permanent establishment. It refers to some sort of permanency in the country.

DTAA stands for double taxation avoidance agreement. It is a tax treaty signed between two or more countries. Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income. For instance, a resident of USA earning income from India, can avail benefit of DTAA. Now, why concept of P.E is important.


  1. DTAA provides that income is taxable in the country of residence, unless the enterprise has P.E in India and income is attributable to such P.E in India.
  2. But as per Section 9(1)(i), income of Non-resident is taxable in India, simply when such income has a business connection in India. So if a Non-Resident earns any income from India, even if such Non Resident did not have any P.E in India, then also such income will be taxable in India….
  3. But no worries…..Icing on the cake is Section 90(2)....It provides that provisions of DTAA or Income Tax Act, whichever is more beneficial to the assessee shall apply. So all non residents, who do not have P.E in India, will take shelter under the provision of DTAA, to avoid payment of tax in India.


Here’s the crux of above discussion:




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