Indian exporters have asked the government to revisit viability of Section 195 of the Income Tax Act under which exporters are asked to pay tax deducted at source (TDS) on payments made for foreign agency commissions, royalties and offshore professional services.
This comes on the back of Supreme Court ruling in favour of Vodafone on Friday wherein the apex court had held that Indian tax authorities had no jurisdiction to levy TDS on Vodafone in the multi-billion dollar deal with Hutchison in 2007.
“With this landmark judgement (Vodafone), applicability of Section 195 on payments made in the course of exports as foreign agency commissions / royalties/offshore and professional services would require to be revisited or reconsidered,” M Rafeeque Ahmed, president of the Federation of Indian Export Organisations (FIEO) said.
Ahmed said this is because there is no permanent establishment / territorial nexus and the place of service provided is outside the jurisdiction of tax authorities. “Payments made in the course of exports as foreign agency commissions, royalties, offshore and professional services may “find a logical settlement” post this historic judgement.”
However, tax experts feel that exporters’ case is not exactly the same as that of Vodafone because of foreign companies involvement. “The Vodafone case has nothing to do with export commission though the only similarity is that in both these cases we are understanding the applicability of Section 195 of Income Tax Act. In case of Indian exporters, withholding tax on payment of commission or royalty, one has to examine the functions performed or services rendered by the foreign agent and its country of resident to conclude whet-her his income is taxable in India or not,” Sunil Shah, partner, Deloitte Haskins & Sells said.
Rajiv Chug, expert (direct taxes) at Ernst & Young feels that tax deducted at source in case of exporters paying commission or royalty to the foreign entity, needs to stay unlike the Vodafone case where income-tax officials had no jurisdiction on foreign entities involved.
The circulars regarding TDS on foreign commissions were withdrawn by the government leaving export-ers in a state of confusion on their transactions with foreign buyers.
In fact, Indian exporters feel that there has to be clarity on TDS under Section 195 in the wake of shrinking global demand owing to which exporters need enough cash to sustain the growth momentum.
Source : mydigitalfc.com