The income tax department considers freight paid to foreign shipping companies outside India through telegraphic transfer, as payment by the company in India. Therefore the department deducts 7.5% of the freight amount paid by the importer.
In its pre-budget memorandum, Ficci has said that the income tax departments move was inconsistent with the provisions contained in the Income Tax Act. And, therefore, it has sought removal of tax liability generating out of the telegraphic transfer of money outside India, to foreign shipping companies.
Ficci has said that the move would help in avoiding unnecessary litigation on the issue.
While the income tax department was not charging any tax on foreign transfer of money, it has begun the practice recently, much to the discomfort of the importers.
Ficci has suggested that the issue can be resolved just by inserting an explanation in section 44 (B) of the Act that deals with incomes derived by companies in carriage of goods.
Ficci has also sought clarification over the application of shipping income based on tonnage taxation scheme. It has sought government explanation on whether passive income such as interest etc, should be construed as relevant shipping income or not.