Ensure Indian firms not subjected to double taxation: India Inc.

New Delhi, May 26 As the government fine-tunes tax regime with countries it has the Double Taxation Avoidance Agreement (DTAA) with, India Inc. has asked the Income Tax department to ensure that Indian firms are not subjected to double taxation.

“Difference in accounting practices followed by different countries would lead to a double taxation on the income of an Indian taxpayer,” the Associated Chambers of Commerce and Industry of India (Assocham) said in a statement. 

The association said it has made a presentation to the Central Board of Direct Taxes (CBDT) suggesting changes in the proposed Foreign Tax Credit (FTC) rules to ensure the Indian taxpayer is not subjected to double tax incidence on income. 

“A high-level delegation led by Rajesh Garg, chairman of the Assocham national council on direct taxes, recently called on CBDT member Rani Singh Nair and held detailed discussion on the issue,” the statement said.

Assocham said it may be possible that in the initial years, FTC exceeds the amount of Indian taxes whereas in the subsequent years, the Indian taxes exceed FTC. 

“In such a scenario where in the initial years, the foreign taxes are in excess of the Indian taxes, if carry forward is not allowed in the subsequent years, the company would be required to pay higher taxes,” it said. 

In addition, there may be difference in accounting mechanism followed by different countries, Assocham said.

“For instance, source country may follow cash basis accounting, whereas India follows accrual basis. Accordingly, in India foreign income may be subject to tax in 'year one', whereas such income may be taxable in the source country in 'year four',” it said.

“In order to address this issue, it is suggested that carry forward provision be introduced in the rules and the timeline for revision of the tax return of earlier years be appropriately amended for claiming FTC in the given situations,” it added.