Union Budget 2025-26: Telcos Seek Clarity on AGR Service Tax and Customs Duty Exemption
Telecom operators are urging the Central Government to clarify the service tax applicability on incremental license fees (LF) and spectrum usage charges (SUC) arising from the Supreme Court’s adjusted gross revenue (AGR) ruling. They are also seeking customs duty exemptions to support the rollout of 5G-backed services in India.
Service Tax Relief Sought by Telcos
Concerns Over AGR Service Tax
The Cellular Operators Association of India (COAI), representing major players like Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi), has emphasized the need for service tax relief. “Telecom operators paid service tax on LF and SUC to the Department of Telecommunications (DoT) and availed full credit. Levying service tax on incremental AGR today would be an unjust cost for the sector,” COAI stated on Monday.
The association has requested relief under Section 11C of the STA (read with Section 83 of the Finance Act). This move would exempt incremental AGR dues from service tax, preventing undue financial burdens and aligning with past exemptions granted under similar circumstances.
Exemptions on Natural Resource Usage
COAI also proposed exemptions from service tax on the “assignment of the right to use natural resources.” This applies to provisions by the Central and State governments as well as development authorities.
AGR Ruling and Its Financial Impact
Burden of AGR Dues
The Supreme Court’s AGR computation methodology has significantly strained telecom providers. Before GST implementation, service tax on AGR payments was offset with credits. However, post-GST, additional AGR payments and service tax have turned into non-creditable costs.
To address this, COAI has urged the government to:
Exempt service tax on additional AGR liabilities (April 2016 to June 2017).
Establish a streamlined process for cash refunds on service tax paid under the Reverse Charge Mechanism (RCM).
These measures, according to COAI, would provide relief to an industry already struggling with financial constraints.
Current AGR Dues
As of March 2025, the estimated AGR dues include:
Vodafone Idea (Vi): Rs 80,000-85,000 crore
Bharti Airtel: Rs 42,000-44,000 crore
Tata Teleservices: Rs 17,000-19,000 crore
The Supreme Court’s October 2019 judgment mandated Rs 1.47 lakh crore in AGR dues. Rejected curative petitions in September 2024 further escalated the dues due to interest and penalties.
Customs Duty Relief for Telecom Equipment
Call for Duty Reductions
COAI has recommended reducing customs duty on telecom equipment to zero. This measure would support 4G and 5G network gear imports until domestic manufacturing achieves high-quality production at competitive prices.
“Reducing customs duties for 4G and 5G network gear to nil is essential until local manufacturers can compete globally,” said COAI’s Director-General.
Strategic Importance for Economic Growth
Lower levy burdens and increased investment opportunities for telecom service providers (TSPs) are critical. These steps would help drive India’s economic growth, strategic development, and the nationwide adoption of next-generation networks.
Conclusion
COAI’s proposals in the Union Budget 2025-26 aim to address key challenges facing the telecom sector. By providing service tax clarity, exempting customs duties, and addressing AGR-related financial stress, the government could ensure the industry’s growth while enhancing India’s technological and economic landscape.
