The two key enterprises in India’s telecommunications sector received letters from the Income Tax Department. The department requested an explanation from Reliance Jio Infocomm and Tata Communications over the Tax Deduction at Source (TDS) on Interconnection Usage Charges (IUC) payment.
Interconnection Usage Charges (IUC) are payments that telecommunications service providers exchange in exchange for using each other’s networks to send voice calls and text messages to or receive them from their respective subscribers.
To maintain a fair competition and stop anti-competitive practices in the telecommunications sector, IUCs are normally governed by governmental agencies or regulatory bodies.
Both the businesses have appealed decisions made in the past about this subject by the Mumbai division of the Income Tax department. The Commissioner of Income Tax (Appeals) is now hearing the case. The most recent notice has been challenged by the Tata Communications, further the Reliance Jio didn’t respond to.
A professional stated that the department is of the opinion that fees on technological usage of the facility of foreign telecom operators, i.e. interconnection usage charges, are applicable as there is human intervention.
However, according to the firms, connections are formed automatically, therefore there are no connecting fees and no need for Tax Deduction at Source.
The authorities claimed that under Section 195 of the Income Tax Act, Indian telecom businesses should deduct taxes at source from IUC payments made to overseas telecom operators.
The TDS requirement must be followed when an individual pays a Non Resident of India (NRI) or a foreign firm interest or any other money other than wages, according to Section 195 of the Income Tax Act. If they don’t, under Section 201 of the Income Tax Act, the assessee companies are responsible for paying the tax deducted at source (TDS) amount and any associated interest.
The Tata Telecommunications representative said that adhering to the rules of the nation or region in which they conduct business is extremely essential to them.
The companies failed to deduct the tax at sources from IUC in relation to the interconnection fees paid by the appellant to various international telecom operators, which is why the notice was issued. Therefore, under Section 201 of the Income Tax Act, the default is equivalent to the payment of interest.
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