By Ramdas S, CRN, November 16, 2009, 1330
While the industry is still fighting out the double taxation issue, ISODA has suggested to its members to turn to the section 197 of the IT Act to get some respite.
The section 197 (2A) says: where Service Tax is deductible at source in terms of sections 192, 193, 194, 194A, 194D, 194-I, 194K and 195 of the Income Tax Act and the recipient justifies the deduction of Service Tax (ST) at any lower rate or no deduction of ST to the satisfaction of the assessing officer, the officer shall issue an appropriate certificate.
According to Harinder Salwan, Secretary, ISODA, the organization has asked all its members to use the stipulation to get an interim relief. Nearly 10 percent of their members have already applied for a certificate of deduction of tax at lower rate. These resellers will now have between 2 and 3.5 percent ST levied on software, deducted on their bills, instead of the normal 10.3 percent TDS deducted on any service.
Currently, on any software sold, on billed amount to the customer, a reseller has to pay 10.3 percent as TDS which is deducted by the customer. While the TDS can be reclaimed by the reseller while filing returns or adjusted against payable ST or Income Tax, it’s a long-drawn process.
Another problem with reclaiming TDS according to Prakash Kini, Managing Director of Bengaluru-based Kinfotech is that since the margins in software reselling business are in single digits, the Income Tax liability isn’t very high. Due to this most software resellers do not benefit much from offsetting ST against IT.
Earlier this year, as per the advice of its legal and financial counsel, Kinfotech applied for a certificate of deduction of ST at a lower rate. “The process is not very complex and it took us around four weeks. Today we issue a copy of the certificate to our clients, and they deduct just 3.5 percent,” said Kini.
“The business looking at utilizing the section 197 (2A) need to prove their case by submitting their last two years balance sheets and tax returns,” added D Nagendra, a CA from Bengaluru. |