Experts Say SaaS Services Do Not Qualify as Royalty

"The department has now passed assessment orders for FY22 and FY23, proposing tax demands, even though many companies have paid the 2 per cent equalisation levy on these transactions during that period. This is leading to double taxation," a person familiar with the matter explained.

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The finance ministry has said such companies paid the equalisation levy voluntarily even though they are mandated to pay tax on FTS in accordance with income-tax law, a tax expert said.

India introduced the levy in 2020 on non-resident ecommerce operators that had significant Indian user bases but no physical presence. These levies were intended as backstop taxes, applicable only where income-tax provisions and tax treaties could not be invoked.

The government agreed to phase out the unilateral levy in August 2024.

Experts have warned this approach could result in double taxation, with companies having paid the levy on gross receipts and now facing income-tax demands on the same income, without any clear mechanism in place to claim credit.