Wipro, TCS under tax lens

After Infosys and Wipro, the Income-Tax Department has initiated scrutiny on Tata Consultancy Services (TCS) for claiming tax benefits for onshore services, often derogatorily called 'body shopping'. Onshore software services account for close to 45% of TCS' $8-billion revenues.

In a scrutiny notice initiated a few days ago, the I-T Department has revisited its argument that onshore software services provided by Indian exporters boil down to export of manpower, rather than software, a senior tax official said.

Onshore development refers to the practice of IT companies sending their staff to work in overseas markets, including the US and Europe. Often, such services are rendered in the premises of the overseas client. The Income-Tax Department has argued that since professionals are under the control and supervision of the company abroad, the contract between the local software company and the foreign client amounts to export of manpower.

Simultaneously, tax authorities say many software companies often book the earnings from such onshore work in their units located in the Software Technology Parks of India (STPI) to avail tax benefits.