Union Budget 2025-26: Telcos seek clarity on service tax on AGR, exemption of customs duty on gear

Telecom operators have sought the Central government to clarify that service tax is not payable on incremental license fees (LF) and spectrum usage charges (SUC) arising from the Supreme Court’s ruling on adjusted gross revenue (AGR).

The Cellular Operators Association of India (COAI), which represents Reliance Jio, Bharti Airtel and Vodafone Idea (Vi), in its recommendations for Union Budget 2025-26 has also suggested the exemption of service tax on additional AGR dues, and exemption of customs duty on telecom equipment to boost 5G-backed services roll out in the country.

“The telecom operators paid service tax on LF and SUC paid to DoT and availed full credit of the same. Levy of service tax today on the incremental AGR would be an unjust cost for the sector,” the Delhi-based association said on Monday.

It said that a relief by way of exemption should be granted under Section 11C of STA (read with Section 83 of the Finance Act). “Further, clarification on the same would prevent unjust financial burdens on the sector and align with past exemptions provided under similar circumstances,” the association said.

COAI also emphasised the exemption of service tax on the “assignment of right to use natural resources” granted by the Central government, state government and development authorities.

“The Supreme Court’s judgement on the methodology for calculating AGR payable to the government has imposed an additional financial burden on telecom service providers,” the association said.

It noted that prior to the introduction of Goods and Services Tax (GST), service tax was paid on AGR payments, with credit available for the same. “However, post GST implementation, the additional payment of AGR due to the Supreme Court ruling, combined with Service Tax, will make it a cost for telecom companies as no credit will be admissible to them,” COAI said.

Accordingly, COAI has urged the government to exempt service tax on the additional AGR liability arising from the Supreme Court judgment.

The telco association has specifically sought relief for the exemption from service tax payment from April 2016 to June 2017, and on various services issued in November 2018.

“Alternatively, COAI proposes that the Government prescribe a streamlined, time-bound process for claiming a cash refund of the Service Tax paid under the Reverse Charge Mechanism (RCM), which would provide significant relief to the industry,” it said.

The telecom industry suffered a body blow in October 2019 after the apex court backed the government’s view and levied a Rs 1.47 lakh crore of AGR dues – comprising Rs 92,642 crore of licence fees and SUC of Rs 55,054 crore.

In September 2024, telcos exhausted their last legal move to challenge the SC verdict, or some aspects of its, after the top court rejected a curative petitiion seeking a recomputation of the AGR dues.

At that time, VI’s AGR dues stood at Rs 70,300 crore while that of Airtel amounted to Rs 36,000 crore. These dues have since ballooned due to the constant accrual of interest, penalties and interest on penalties.

Industry estimates the latest AGR dues till March 2025 for Vi could be Rs 80,000-85,000 crore, Rs 42,000-44,000 crore for Airtel, and Rs 17,000- 19,000 crore for Tata Teleservices.

“Lowering levy burdens and promoting investment opportunities for the TSPs are not just economic imperatives, but also strategic investments in the country’s future. We hope that the government will take these proposals into account in the future budget and assist the businesses in overcoming these long-standing issues,” said SP Kochhar, Director-General, COAI.

Telcos have also recommended that the customs duty on telecom equipment be reduced to zero, and subsequently increased depending on the creation of an ecosystem for manufacturing network gear in India. “Until high-quality equipment is available domestically at competitive prices, we urge the government to reduce customs duties for 4G and 5G network products, as well as other related items, to nil,” Kochhar said.