US retail giant Walmart has submitted to Income Tax authorities its rationale for deducting tax on payments made to some Flipkart shareholders, a senior official said Wednesday.
Income Tax authorities, which had previously asked Walmart to explain the logic behind its tax deductions on the USD 16 billion Flipkart deal, have the option to seek more clarifications from the US retailer once they study the reply.
On September 7, Walmart paid Rs 7,439 crore tax on payments it made to buy out shares of 10 major shareholders of Flipkart but had not done so for another 34 who exited the Indian e-commerce company in the USD 16 billion deal.
As many as 44 shareholders of Flipkart, including significant ones like SoftBank, Naspers, venture fund Accel Partners and eBay, sold their holdings to Walmart.
Individual shareholdings in Flipkart and those who offloaded the stake have not been publicly declared either by the seller or the buyer.
After Walmart deposited Rs 7,439 crore tax, the tax department asked Walmart to explain the rationale followed while deducting or not deducting taxes from Flipkart shareholders.
Walmart has now replied to I-T authorities reasoning out the basis of tax deduction, the official told PTI here.
“We are studying their response.”
The I-T department may reach out to the shareholders directly or may write to Walmart once again if it is unsatisfied with the response.
“The next course of action would be on a case to case basis,” the official added.
Withholding tax or retention tax is an income tax to be paid to the government by the payer rather than by the recipient of the income.
The tax is withheld or deducted from the income due to the recipient.
In case of Walmart-Flipkart deal, the withholding tax pertains to the capital gains made by the shareholders of Flipkart.
“We take our legal obligations seriously, including paying taxes to governments where we operate. As we said before, following our Flipkart investment, we completed our tax withholding obligations under the guidance of the Indian Tax authorities. In future also, we will continue to work with authorities to respond to their queries, if any,” a Walmart spokesperson said.
Nangia Advisors LLP Managing Partner Rakesh Nangia said Section 133C of the I-T Act empowers tax authorities to issue notice to any person to furnish information or documents for verification of the information already in its possession.
“Hence based on the information available with the tax authorities about the shareholders of Flipkart, a notice can be issued to them for verification of such information,” Nangia said.
Further, under section 131(1A), where the tax authorities suspect that the shareholders are liable for capital gain tax in India, they may issue a notice to such shareholders, Nangia added. (PTI)