Indian retailers raise concerns around JioPhone Next’s deposit scheme

JioPhone Next deposit scheme
JioPhone Next smartphone

Reliance Jio’s upcoming affordable smartphone, JioPhone Next, is set to face issues in the offline retail channel as handset retailers have raised concerns around the deposit scheme that the telco is likely to roll out with the device around the Diwali festival.

Indian mobile phone retailers have claimed that they are most likely to face issues filing for Goods and Services Tax (GST) against a deposit slip for the JioPhone Next smartphone.

They have reportedly asked Reliance Jio and its sister company, Reliance Retail, on the nature of the transaction for the latest smartphone, which will come with a deposit scheme.

A retailer told the Economic Times that there is no clarity in a deposit scheme on who will pay the GST because retailers are told that the customer can ask for his money back later.

Jio had previously rolled out a similar scheme for its 4G feature phone, JioPhone, in August 2017. The phone was made available to consumers for a Rs 1,500 deposit, which was refundable after three years on the return of the device.

Offline retailers have said that if the new smartphone comes with a similar deposit scheme, they would again have to deal with issues around the treatment of GST.

They said that there is no clarity on how the money will be provided to consumers if they decide to return the smartphone after using it. They have sought clarity from Reliance on how the GST calculations will occur in case of a return.

“If the customer returns the phone, how will I return the money? Will distributors take back the mobile set back? And what if the distributor has changed in these years?” a retailer was quoted as saying by the publication.

JioPhone Next smartphone, which is co-developed by Google, aims to attract a bulk of India’s 300 million feature phone users to Jio. The phone launch was delayed from September 10 to November around Diwali due to the chipset and component shortage.

As per the Indian GST framework, deposits are typically treated similar to sale proceeds and taxed accordingly. The security deposits are taxable under GST at 18% as taxable events get triggered, resulting in rendering services or supply.

Abhishek A Rastogi, a partner at Khaitan & Co, a law firm, said that such deposits, even when returned on fulfilling all conditions, will be taxable under the GST unless the telecom company or the retailer can demonstrate that these were refundable security deposits.

As per the report, India’s tax authority had in the past claimed that certain deductions made by the retailer or the company from the security deposits are a condition towards sales.

The JioPhone Next will run Pragati operating system, powered by Google’s Android operating system and Qualcomm’s chipset.

Jio has reportedly partnered with five banks and four non-banking financial companies (NBFC) to bring financing schemes for the JioPhone Next. It has joined hands with the State Bank of India (SBI), Piramal Capital, and IDFC First Assure and Non-Banking Financial Companies (NBFCs) to make Rs 15,000 crore ($2.03 billion) worth of credit support to customers.

As per various media reports, the JioPhone Next could be priced between $50-$70.

The Mukesh Ambani-led telco recently placed a production order for the JioPhone Next 4G smartphone to home-bred contract manufacturer UTL Neolyncs, a joint venture between Bengaluru-based UTL Group and Neolync Solutions. The phone is currently being manufactured by UTL Neolyncs’ facility in Tirupati and Sriperumbudur.

During the earnings call on Tuesday, Alphabet and Google CEO Sundar Pichai said that the JioPhone Next would have a lot of impact in connecting and helping millions take advantage of a smartphone in three to five years.

“People are looking for access and there’s definitely been a wave of them who have adopted smartphones (in India)…there is still demand to shift from feature phones to smartphones. JioPhone Next is like building a phone beyond the English-speaking community and going local, doing it in a way that many more people can take advantage of a smartphone,” Pichai added.

Related article: Jio aims to sell 50 million JioPhone Next 4G smartphones in six months

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