International BusinessGovt may extend tax holiday for software firms
The government may extend the tax holiday for software exporters beyond March 2010, in the Budget tomorrow.
- Govt should roll back stimulus measures: Plan panel - Govt lifts ban on wheat export - Google"s book deal under US scanner - BJP slams Rail Budget; Cong says it is pro-people - Govt approaches CLB to recall 6 directors from Mahindra Satyam - Govt clears re-introduction of Companies Bill
Analysts said extension of tax benefits will be a great relief to the IT sector, which is reeling under the impact of global financial crisis, which has resulted into fewer number of orders and sharp reduction in earnings.
Official sources said though the industry has asked for five years of tax exemption, the Finance Ministry may grant it for two years.
Currently software-exporting firms enjoy a tax holiday as their units are set up under the Software Technology Parks of India scheme, which entitles them to such a benefit.
Major software exporting firms like Wipro, TCS and Infosys earn a major chunk of their revenues from meltdown hit western markets.
Under the tax holiday scheme, firms in technology parks pay taxes only on the business they get from India and their export revenues are tax-exempt. Most of them get more than three-quarters of their revenue from exports.
Nasscom President Som Mittal said, "The tax break has to be extended not only to encourage SMEs and enable expansion into smaller towns but to also ensure that work does not shift outside India."
IT Minister A Raja had approached the Prime Minister and the Finance Minister for a two-year extension of tax concession available under the STPI scheme.
Other issues on which the USD 47-billion industry is seeking clarity are on service tax and fringe benefit tax.
The other demands are abolishing minimum alternate tax (MAT) for STPIs and export-oriented units, safe harbour provisions in transfer pricing regulations, removing fringe benefit tax (FBT) on employee stock option plans (ESOPs) and no duplication of indirect taxes.
At present, both service tax and value-added tax (VAT) are levied on customised software and renewing licence to use software.
ESOPs, a key component in employee compensation in the IT-ITES sector, was brought under FBT from 2008-09. The levy is based on the value of the security on the date of vesting the option, which the industry says is misleading.
The industry wants the government to tax the ESOP in the hands of employees at the time of sale, as it was done earlier. This would result in only the real income being charged.
Sources said on the duplication of indirect taxes, there is some possibility of relief where VAT may be the only tax on customised software and renewal of licence to use software.
Industry body Assocham said extending tax benefits under the STPI Act is on the cards.