Some stakeholders who exited Flipkart in the recently closed Walmart deal are learnt to have approached the income tax authorities to ascertain the final tax liability, exploring grounds for a lower withholding tax rate, especially if they are covered under a tax treaty. The sellers are getting in touch with the department ahead of the September 7 deadline for Walmart to file the withholding tax certificate with the Indian tax authorities, a senior tax official said.
As per I-T department, the due date for deposit of tax deducted/collected at source in a month is seventh day of next month. Since Walmart announced the closing of its agreement with Flipkart on August 18, the income tax department is anticipating filing of the withholding tax certificate by September 7.
“Some of the sellers have approached us. Walmart still has time till September 7 to file the withholding tax certificate, failing which the tax department will contact them,” the official said, but refused to name the sellers.
Tax experts said that though under Section 197, income tax is required to be deducted at the time of credit but the seller can give reasons as to why they should be taxed at a lower or nil rate. “Sellers, especially non-resident sellers, can approach for a lower rate of withholding tax. Say, those in Singapore could get grandfathering benefits under the Singapore-India DTAA since the investments precede 2017 when the treaty was amended,” Amit Agarwal, partner, Tax and Transfer Pricing, Nangia & Co said.
“Also, if the seller is US-based, then they can approach tax authorities for a lower withholding tax rate of 10 per cent without indexation benefit. If the assessing officer finds sufficient grounds for lower tax rate, the buyer (Walmart) will then have to honour the lower rate withholding tax certificate obtained by the seller from the tax authorities,” he added.
The I-T laws permit certain taxpayers to get relief from withholding tax/TDS at a lower or nil rate under Section 197 of the I-T Act. An assessing officer can give certificate for such lower rate, if the officer is satisfied that the existing and estimated tax liability of a person will be lower and the assessee provides sufficient grounds for the same.
The I-T Act also allows that where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the assessing officer, deduct income tax at the rates specified in such certificate or deduct no tax, as the case may be.
The tax department had in May communicated to Walmart about the applicability of tax provisions of Section 9 (1) and Section 195 since both withholding tax and capital gains tax would apply on the deal. Earlier this month, Walmart said they will respond to the inquiries of the Indian tax authorities.