Microsoft Is Due Rs. 7 Billion As Tax
Indian Tax authorities has recently ordered Microsoft Inc. to pay over Rs. 7 billion in tax liabilities it is due on royalty income of its products in the country. It is to be noted that Microsoft 
does not sell any of its software or hardware products in India. But it has been offering licensed use of its products to Indian customers. Gracemac Corporation, Nevada, a 100 percent subsidiary of Microsoft has been involved in licensing out to end users in India since 1999. According to user agreement, the software has to be activated for end-users to use and it is not sold but licensed.
But in a recent order, Indian tax authorities have said that Microsoft is liable to pay taxes on royalties it collects for licensing out. Just to note figure, Microsoft has received Rs. 22.4 billion as royalty fee between 1999 and 2005 and according to taxation law, it is liable to pay Rs. 3.5 billion in tax. But as it has not paid the tax in due time, the amount has swelled to over Rs. 7 billion including interests during the period.
Initially, Microsoft has declared to Indian Income-Tax department that, since it does not sell anything in India, its income is nil. But tax authorities say that since a price is charged for the licensed use of Microsoft products, the usage fee and royalty on it is taxable.
According to company statesman,
“Microsoft believes it is in compliance with Indian tax laws and the income tax treaty agreement between India and the US. The case in point is an old issue relating to the financial period 1999 to 2004 and for an overseas Microsoft entity.”
clearly referring to the agreement the two super powers have to avoid double taxation. However, analysts believe that royalty payments which are going out of India could be taxed.
