Taxation of consortia to be clarified to boost investment in core sector

NEW DELHI: After a big infrastructure push in the budget, India is likely to clear the air on taxation of consortia, a structure used internationally to implement large infrastructure projects.

“We have examined the issue. There is a genuine problem here. We will soon resolve it…We will issue a circular and if need be move an amendment to the law,” a financial ministry official said.

Taxation of consortium as “association of persons” is seen as a key hindrance by foreign investors keen to partner the country to build its creaky infrastructure after authorities raised tax demands. Not just industry but many countries have also represented against tax of association of persons.


High court rulings that have spelt out clear principles to define ‘association of persons’ are likely to form the basis of the proposed clarification. The Narendra Modi-led NDA government has identified infrastructure development as a key focus area to spur growth.

It has allocated Rs 2.18 lakh crore to highways and rail development, and unveiled a slew of measures in the budget for 20160-17, looking to bring down tax litigation, simplify procedures and cut discretion available to tax authorities to create a non-adversarial tax regime to foster investments.

In large engineering, procurement and construction (EPC) contracts, bidding is usually done jointly by multiple players. This is a preferred mechanism as all kinds of expertise required for the execution of a project can be gathered under a single group but individual players can take up specific components by themselves.

Each member of the consortium files returns on his individual income from the contract separately. But tax authorities, apart from taxing individual contractors, began taxing consortium as well as association of persons. This makes the entire income, including the income arising from offshore supply and services, taxable in India.

Non-residents are unable to claim credit in the country of residence for tax paid as the association of persons, leading to double taxation. Experts said the issue has been hanging fire for long and needs expeditious resolution.

“There is a need to clarify the tax position on AOPs for consortium arrangements entered into by various parties, who are bound to bid together for large infrastructure projects due to the terms and conditions of such projects,” said Vikas Vasal, partner, KPMG in India.