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“The search action has revealed that two major companies have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than Rs.5500 crore,” says the I-T department

The department also alleges that these companies acted in contravention of the Income Tax Act, 1961 with how they purchased components to manufacture mobile handsets without making disclosures related to the transactions

Chinese-manufacture Xiaomi commands a majority market share of Indian smartphone sales with the company accounting for 23.4% of all smartphone sales in the country during Q3 2021, followed by South Korean Samsung (16.9%), Vivo (16.4%), realme (15.7%) and Oppo (10.7%).

Chinese smartphone makers Oppo and Xiaomi could face fines of up to INR 1,000 Cr after violating tax law by claiming expenses amounting to INR 5,500 Cr that the department deemed inappropriate, according to a press release by the authority. 

Even though the press release itself doesn’t explicitly mention the two companies, many media outlets have confirmed the same. Last month, we had reported on the raids conducted by the department on the offices and other facilities of Oppo, Xiaomi and their distribution partners.

“Various premises in the states of Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi & NCR have been covered in the action,” said the press release. 

It further said, “The search action has revealed that two major companies have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than INR 5,500 Cr. The claim of such expenses does not seem to be appropriate in light of the facts and evidence gathered during the search action.”

The department goes on to allege that these companies acted in contravention of the Income Tax Act, 1961 with how they purchased components to manufacture mobile handsets without making disclosures related to the transactions.

The I-T department had conducted similar raids on Chinese telecom manufacturing company ZTE in August this year. The department conducted raids at five premises, including the corporate office, residence of the foreign director, the residence of the company secretary, accounts manager and cash handler of the foreign subsidiary company in India. 

Chinese-manufacture Xiaomi commands a majority market share of Indian smartphone sales with the company accounting for 23.4% of all smartphone sales in the country during Q3 2021, followed by South Korean Samsung (16.9%), Vivo (16.4%), realme (15.7%) and Oppo (10.7%). The last three are owned and operated by Chinese conglomerate BBK Electronics, giving it an effective 42.8% market share.