What is meant by Digital economy? What are the taxation issues in E-Commerce? List out the OECD recommendations under Action Plan 1 which deals with…

In digital economy transactions like sale, purchase, payment, rendering services are performed through digital or virtual mode. In the digital domain, business does not actually occur in any physical location but instead takes place in "cyberspace." Taxation issues in e-commerce The typical taxation issues relating to e-commerce are: (i) the difficulty in characterizing the nature of payment and establishing a nexus or link between taxable transaction, activity and a taxing jurisdiction, (ii) the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. The following are OECD recommendations under Action Plan 1 dealing with digital economy: (1) Modifying the existing permanent establishment rule to provide for whether an enterprise engaged in fully de-materialized digital activities would constitute a PE, if it maintained a significant digital presence in another country's economy. (2) a virtual fixed place of business in the concept of permanent establishments i.e., creation of a PE when the enterprise maintains a website on a server of another enterprise located in a jurisdiction and carries on business through that website. (3) Imposition of a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of equalisation levy on consideration for certain digital transactions received by a non-resident from a resident or from a non-resident having permanent establishment in other contracting state. In the present case, since Mr. Rohan Mehta is carrying on travel agency business, he is not eligible for presumptive provisions of section 44AD, though his turnover does not exceed 3crores. In this case, the turnover of Mr. Rohan Mehta exceeds 1crore but does not exceed 10crore. Accordingly, it has to be seen whether cash receipts exceed 5% of aggregate receipts and cash payments exceed 5% of aggregate payments, to determine whether tax audit is compulsory. During the P.Y. 2025-26, his cash receipts are - 13,35,000 plus - 52,500 totaling to 13,87,500, which is 4.83% of total receipts of 2,87,00,000. Cash payments made during the P.Y. 2025-26 are - 20,58,000 which is 7.98% of aggregate payments of 2,58,00,000. Since his cash payments during the P.Y. 2025-26, exceed 5% of aggregate payments made during the year, he is required to get the accounts audited under section 44AB and furnish tax audit report on or before the specified date i.e., one month prior to the due date of filing return of income under section 139 (1) .