Finshots Daily Telcos are in a tax soup
Oct 25, 2023
In today's podcast, we explore the tax treatment of license fees for telecom companies in India and the financial struggles faced by the industry. We also discuss a landmark Supreme Court ruling that classifies license fees as capital assets, potentially resulting in increased tax liability for telcos.
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Telco Tax Trouble
- Telecom companies in India face a $1.7B tax bill after a Supreme Court ruling.
- The court decided that annual license fees are capital expenses, not revenue expenses.
Bharti Hexacom Case
- The tax battle began with Bharti Hexacom, a subsidiary of Bharti Airtel, during the 2003-2004 assessment year.
- Hexacom categorized license fees as revenue expense, reducing its tax liability, which was challenged by tax authorities.
Crux of the Ruling
- The Supreme Court's decision hinged on whether telcos could operate without paying license fees.
- Since non-payment leads to license cancellation, the court deemed the fees a capital asset.