• Notification Date: 22-11-2021
• Notification No: 90/2021-22

Department of Telecommunications backs refund of input tax credits for telecom sector

NEW DELHI: The telecom department has asked the finance ministry to consider refunding input tax credits (ITC) that telcos have accumulated under the goods and services tax regime, two officials aware of the matter said. Though GST rules permit companies to claim refunds for taxes paid on inputs, telecom infrastructure remains specifically excluded.

The telecom ministry sent the recommendation to the department of economic affairs last week after holding internal consultations, the people cited above said on condition of anonymity. “It has been sent as a standalone recommendation," one of the two officials said. “GST credits are there, but telcos can’t utilize them. Refunding them will require an amendment to the GST Act because, at present, there is no such provision in the law. Therefore, it has gone to the finance ministry," the official added.

Telecom service providers have repeatedly requested the government to refund accumulated tax credits on telecom equipment or adjust the amount against their statutory dues.

“The accumulated ITC for telecom companies is potential to the tune of ₹50,000 crores," said Rajat Bose, partner at law firm Shardul Amarchand Mangaldas, who is representing some telcos in lawsuits on the matter.

“The issue is mainly on account of telecom towers where ITC is not allowed due to restriction under the GST law. In case the government allows the refund, it will significantly help improve the cash flows for telecom companies and speed up investments in 5G technology," he added.

Refunding the amount would immensely help the finances of telecom service providers, especially Vodafone Idea Ltd. Telcos have recently raised tariffs after the government came out with a bailout package for the sector in September.

The second official said the recommendation could be taken up during the budget discussions within the departments but cautioned that there would be multiple challenges in the proposal becoming effective.

"First, GST refunds are not just a telecom sector issue; other sectors face similar issue also, any decision regarding GST is taken by the GST Council, which is a federal body and takes into account views of all state governments as well," the official said.

The GST Council, which meets once every quarter, is the nodal decision-making body on the indirect tax regime that came into place in July 2017. Any amendment to the GST Act can be done after the approval of the council, which needs the approval of states.

Telecom companies have been raising the issue of tax credit refunds with the finance ministry for a long time. But there has been no discussion on this issue yet within the GST Council.