The Income Tax department has turned its attention to Financial Technology firms allegedly engaged in providing instant short-term loans through mobile applications while making high payments to overseas parent companies.
The international taxation wing of the IT department has issued notices to over 40 fintech firms, demanding explanations for the high payments made to their foreign parent companies and questioning why these payments should not be treated as “business profits,” as the nature of the transactions does not appear to be fees paid for technical services.
The tax authorities have raised concerns about the nature of these transactions, as the money remitted to the foreign parent company was shown as fees paid for technical services (FTS), allegedly intended to shift profits from India to the parent country and reduce the expense claims of the domestic arm.
The tax officials suspect that inflated prices were paid under the guise of FTS and royalty in order to reduce the overall tax liability of the fintech Indian subsidiary.
