Govt looking at RJio free phone offer for possible GST avoidance

The finance ministry is examining Reliance Jio Infocomm Ltd's offer to give 4Genabled feature phones to customers at effectively "zero" price for possible goods and services tax avoidance, two senior ministry officials said on Tuesday.

"The issue has been brought to our notice, we are looking into it," one of the officials told. Mobile phones currently attract a good and services tax of 12%. "We have to look at it also because it involves goods. They are phones and they are goods and there is also service element to it. We will have to see both," the official said. Reliance Industries Ltd Chairman Mukesh Ambani on Friday announced that the company's telecom subsidiary will offer phones at an effective "zero" price for customers.

According to the offer, the phones will be virtually "free" as customers will have to pay only a security deposit of 1,500 rupees, which will be refunded after three years on returning the phone. Reports said the Cellular Operators’ Association of India plans to seek clarifications from the finance ministry on the tax implications of selling handsets free.

"First we need to understand what exactly the scheme is vis-a-vis others. What was the scheme earlier and if they have done something...which is otherwise not acceptable," the official said.

The goods and services tax fitment committee is examining the issue, the official said.

"If at all, the issue is too big that we cannot resolve, we may take it to the GST Council," the official said. The GST Council is due to meet on Aug 5. The issue assumes significance in the backdrop of a Comptroller and Auditor General of India report which last week said the exchequer lost potential revenue of over 120 bln rupees as six telecom companies under-reported revenues between 2010-11 (Apr-Mar) and 2014-15.