Neha Dhamija

As part of Government’s efforts to make the revenue collections more efficient, small- and mid- sized firms that carry out the outsourced work will have to pay fraction of their revenue as ‘tax deducted at source’.

A proposal, according to which the companies handing over some of their work as ‘outsourcing’ to small players will be paying 2% less on the order value, is underway. This amount will be adjusted in the actual taxes paid by the firms or when they deposit the advance taxes. The effects of this step include not only a raise in the working capital requirements for companies, but also a surge in the prices to be borne by the end-consumer.

Among the companies which outsource substantial portion of their workings belong to sectors like- FMCG, automobiles, pharmaceuticals, readymade garments and electronics. The need for such a re-structuring in the tax patterns came up because of provisions like ‘a task outsourced wholly did not attract taxes, as TDS but if a portion was outsourced, tax is levied on it’. This anomaly has led to widening of the tax-net.