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I-T dept to end retailers' rosy days
August, 07th 2007
The party for retailers taking space in malls may soon end with the tax sleuths on prowl to check evasion of tax deducted at source (TDS) by them.

Income-tax department is laying special emphasis on tightening of TDS administration, as these payments are collected by the government even before the income is received by the beneficiary.
The income-tax department has taken note of fact that many retailers split the basic lease agreement into separate lease agreements for fixtures, building and maintenance just to avoid TDS. Also at times, retailers enter into profit-sharing agreements with mall owners to avoid paying tax at source.

As per the provisions of the Income-Tax Act u/s section 194 (I), both mutilnational and national companies have to deduct tax on their payments towards lease rentals for their retail outlets. By splitting costs through separate agreements for fixtures or maintenance or profit-sharing arrangements with owners, they can avoid tax payments. TDS has to be cut at the rate of 20%.

Income-tax department is laying special emphasis on tightening of TDS administration, as these payments are collected by the government even before the income is received by the beneficiary. Out of the total direct tax collection of about Rs 2,30,000 crore, TDS accounted for Rs 70,000 crore in 2006-07.

However, mall developers and owners paint a completely different picture altogether. The developers are of the view that tax evasion through playing around with profits would only impact their reputation.

This kind of practice is not done in A-class towns and cities where rentals are as high as Rs 200-250 per square feet. Though separate lease deeds are signed for maintenance, there is no scope of tax evasion as there is standard rate for maintenance charges, ranging from Rs 18-25 per sq ft, Ansal Plaza mall management company head Abhijeet Das said.

Real estate consultant Jones Lang LaSalle India chief Anuj Puri says that world over the practice of revenue sharing on profit or turnover is prevalent.

In India also I do not see any major problem with the mechanism. The retailers are happily sharing profits with mall owners as they want additional footfalls, which are ensured by the mall owners. McDonalds, for example, pays 5-6% of its revenue to mall owners. There is no problem with regard to tax compliance, at least with major developers and retailers who practice fairness in deals, Mr Puri said.

Concedes Zoom Developers CEO Rumneek Bawa, These days we have so many foreign players taking space in our malls. We will have to abide by good corporate governance principles or well lag behind.
 
 
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