New Delhi:With the shifting of the second edition of the multi-million dollar Indian Premier League cricket tournament to South Africa, government may lose revenue as the law leaves room for not levying tax at source on payments to foreign players for an event outside India.
Andrew Flintoff, Paul Collingwood and J P Duminy of England, Kevin Peterson of South Africa and Shaun Taint of Australia have been contracted by different IPL franchisees for a total of 4.7 million dollars.
Bulk of this amount is likely to be paid in the current season even though the agreement between the franchisees and the players is for three years, sources said.
Officials admitted there is a "grey area" in the income tax law with regard to payments to non-resident sportspersons or sports associations if an event is held outside the country.
Section 194E of the Income Tax Act provides for deduction at source at the rate of 10 per cent before fee is paid to non-resident sportsperson.
While it specifies that "the income must have been earned by the sportsmen by way of participation in India in any game...or sports", it does not deal with an eventuality of an event taking place outside the country.
The IT officials are apprehensive that they may lose TDS in the current IPL season beginning April 18 in different South African cities. The exchequer collected Rs 91 crore TDS during the first season of IPL last year.
Meanwhile, the suspense over tax exemption to Board of Control for Cricket in India (BCCI) on the income earned from the mega cricket events like IPL continues, with the I-T Department waiting for the I-T return due from the board by September.
Although BCCI is registered with the authorities as a charitable institution, amendment to the definition of the 'public utility' gives powers to the assessing officer to deny tax benefit to the cricket control board, an official said.
While the department is understood to have made up its mind to bring BCCI under the tax net, it cannot proceed without the tax returns for the financial year 2008-09.
So far as the cash-rich IPL is concerned, "it is not registered as a separate tax entity and its income has to be included in the returns filed by BCCI," the official said. The world's richest cricket body (income for 2007-08 was over Rs 1,000 crore) has been enjoying tax exemption under Section 12 (a) of the Income Tax Act for promotion of sports.
However, this exemption may be reviewed with the amendment made in the Finance Act 2008-09. "This is because the department will not give the advantage of 'public utility' if a body engages in commercial activities," he said.
Under the new dispensation, the exemption can be withdrawn even if the entire income spent by BCCI into building stadia and opening cricket academies, he clarified.