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Tax department changes rule for accommodating deductions for deferred spectrum payment
October, 08th 2016

In view of the telecom spectrum auctions that concluded on Thursday, the income tax department has suitably amended the deductions provision to accommodate deferred payments allowed to acquire airwaves.

It has allowed telecom companies to claim deductions for expenditure made in instalments.

The current rule provides that payment actually made would be taken for consideration for allowing deductions, which is given in equal instalment a year. The changed rule would accommodate deferred instalments as well, and allow deductions spread over the useful life of spectrum.

Had the change not been made and if the payments were to be made over say, three years, it would cause difficulties for taxpayers in the claiming the expenditure over the useful life of the spectrum.

The government allows operators to pay spectrum fee in instalments. In the just concluded auction telecom operators are not required to pay the full amount upfront. They have to pay only 50 per cent of the total amount of spectrum sold in bands of over 1GHz and 25 per cent for airwaves under that.

“It is interesting to note that the government has resorted to amending the Income-Tax Rules to provide for a wider definition of a phrase which is already specifically defined in the Act. Given the practical issues involved, it was probably unavoidable. The question still remains whether the law should have been drafted better, considering all practical issues involved at the outset,” said Rahul Jain, partner, Nangia and Co.

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