After Infosys & Wipro, I-T department initiates scrutiny on TCS:
I-Tax Dept has initiated scrutiny on TCS for claiming tax benefits for onshore services. Onshore software services account for close to 45% of cos' $8-bn revenues.
In a scrutiny notice initiated a few days ago, the I-T Department has revisited its argument that onshore software services provided by Indian exporters boil down to export of manpower, rather than software, a senior tax official said.
Onshore development refers to the practice of IT companies sending their staff to work in overseas markets, including the US and Europe. Often, such services are rendered in the premises of the overseas client. The Income-Tax Department has argued that since professionals are under the control and supervision of the company abroad, the contract between the local software company and the foreign client amounts to export of manpower.
Simultaneously, tax authorities say many software companies often book the earnings from such onshore work in their units located in the Software Technology Parks of India (STPI) to avail tax benefits.
Responding to an email, a TCS spokesperson said: "As a policy we do not comment on tax-related issues." According to a senior tax practitioner, the timing of the notice is important. "While there is no longer tax holiday for STPIs and EOUs (except for units in SEZs) from April 1, 2011, the government continues to be under pressure to generate revenues," said Indraneel Roy Chaudhury, Tax Leader, South India Practice, PwC.
Interestingly, under Indian tax rules, "human resource services" can get the benefit of tax holiday. "But on this," he said, "one needs to examine contracts to determine what would fall within this purview."
MUMBAI: It's now the turn of India's largest software company to spell out its stand on a tricky point that tax authorities have been raking up.
After Infosys and Wipro, the Income-Tax Department has initiated scrutiny on Tata Consultancy Services (TCS) for claiming tax benefits for onshore services, often derogatorily called 'body shopping'. Onshore software services account for close to 45% of TCS' $8-billion revenues.
In a scrutiny notice initiated a few days ago, the I-T Department has revisited its argument that onshore software services provided by Indian exporters boil down to export of manpower, rather than software, a senior tax official said.
Onshore development refers to the practice of IT companies sending their staff to work in overseas markets, including the US and Europe. Often, such services are rendered in the premises of the overseas client. The Income-Tax Department has argued that since professionals are under the control and supervision of the company abroad, the contract between the local software company and the foreign client amounts to export of manpower.
Simultaneously, tax authorities say many software companies often book the earnings from such onshore work in their units located in the Software Technology Parks of India (STPI) to avail tax benefits.
Responding to an email, a TCS spokesperson said: "As a policy we do not comment on tax-related issues." According to a senior tax practitioner, the timing of the notice is important. "While there is no longer tax holiday for STPIs and EOUs (except for units in SEZs) from April 1, 2011, the government continues to be under pressure to generate revenues," said Indraneel Roy Chaudhury, Tax Leader, South India Practice, PwC.
Interestingly, under Indian tax rules, "human resource services" can get the benefit of tax holiday. "But on this," he said, "one needs to examine contracts to determine what would fall within this purview."
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