Free Reliance 4G Jio Phone Under Confusion of GST India

Inspired by the launch of Reliance Jio Phone, many Indian telecom operators like Airtel, Vodafone India and others may also soon come up with their own 4G bundled phone offers. Rajan Mathews, director general of the COAI (Cellular Operators’ Association of India), in a recent interview, said that major telecom companies in India are likely to come forward seeking clarification on GST rules applicable for bundled 4G handsets. He said that the government must clarify GST implication rules for such zero-price handsets and guide these companies about the possible impacts of launching similar offers if any.

The long-awaited Reliance Jio 4G feature Phone was launched last week with several unbeatable offers like free voice calling for life and free 4G internet. Jio 4G phone comes with the features of a basic mobile that includes a rear camera, keypad, 2.4-inch display, headphone jack, torchlight, FM radio, etc. The company is selling the phone at a minimal price of Rs 1,500, which is also refundable if the device is returned after three years. So, the Jio 4G smartphone is technically free for users. It is natural for other telecom operators to get curious whether such schemes will attract the normal GST tax at 12% rate and other charges like license fees and spectrum usage cost.

The long-awaited Reliance Jio Phone was launched last week with several unbeatable offers like free voice calling for life. The company is selling the phone at a minimal price of Rs 1,500, which is also refundable if the device is returned after three years. It is natural for other telecom operators to get curious whether such schemes will attract the normal GST tax at 12% rate and other charges like license fees and spectrum usage cost.

Since Jio Phone is technically a free phone, it is very likely for mobile operators to ‘look for clarity’ on whether there will be a GST imposition on these free phones and if it would increase the cost of bundling offers for similar handsets.

HSBC Global Research, in a note to clients, said that other major telcos like Idea Cellular, Airtel, and Vodafone India may also soon launch ‘a scheme similar to what is being offered by Jio.’

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A major telecom company executive recently said, “Someone can choose to offer anything for free, be it a handset or even a plot of land. But that doesn’t mean the asset being offered is devoid of an imputed value, in that, the government can always go back to the company, determine a fair value of the asset and levy a tax.”

Many tax experts are also considering the possibility that the Jio Phone, being offered to consumers against a refundable amount, may likely amount to a deemed sale. A senior executive at a top consulting firm said, “Even if it is not a sale, it can be construed to be a handset lease, in which case, it would attract GST. The government must clear the air on the issue as other telcos could also be contemplating similarly structured handset bundling offers.”

The confusion is because of the tax provision under which refundable deposits are not liable for GST. But the government can still charge tax on the amount in case if the phone is not returned and the deposited amount is not claimed back. Therefore, the phone importer should pay basic customs duty and IGST. Another major issue is whether these deposits will be considered in the licence fee and spectrum usage charges paid by operators to the government.

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“It’s for the government to determine what Jio Phone offer at an effective sale price of zero means. The key issue is whether or not a one-time fully refundable deposit over a three-year span can be construed as revenue and included in a telco’s adjusted gross revenue,” said COAI’s director general.