The Department of Information Technology is pushing for a two-year extension of tax sops under the Software Technology Parks of India (STPI) scheme under Section 10(A) and Section 10(B) of the Income-Tax Act.
We are pushing the finance ministry to extend these sops for at least two years. This is important for smaller players, a department official told Business Standard.
The finance ministry might not be in a hurry to announce a decision in the coming Budget, the official said. We are formulating alternatives, but are trying to push for an extension. The finance ministry may put off a decision, he said.
Under the STPI scheme, 100 per cent tax deduction on profits under Section 10A and Section 10B is available only up to March 31, 2009. The companies will have to pay tax at an estimated rate of 33.99 per cent in the absence of these deductions.
Communications and Information Technology minister A Raja had earlier written to Finance Minister P Chidambaram seeking a 10-year extension of the scheme that exempts export revenues of software companies from tax.
IT industry body Nasscom, in its pre-Budget memorandum, has appealed to the finance ministry to extend this tax exemption. The STPI scheme, reasons Nasscom, has been a big success and a major contributor to the growth of the Indian economy. It said the withdrawal of the exemptions would increase the industrys cost substantially and put the Indian IT companies at a disadvantage to global peers.
The finance ministry is yet to take a final decision. It, however, is not in favour of extending the tax benefits in an attempt to stem the tax revenue forgone. In 2006-07, the revenue forgone on account of sections 0A/10AA/10B/10BA was estimated at Rs 12,524 crore, an increase of 44.65 per cent over the Rs 8,658 crore forgone on this account during 2004-05.
Interestingly, an ICRIER (Indian Council of Research on International Economic Relations) study commissioned by the finance ministry has recommended that the income tax exemptions to export-oriented units (EoU) and under the STPI scheme should continue beyond the phaseout date of March 31, 2009.
According to the study, the revenue loss incurred by the government due to the exemptions would be around Rs 8,186 crore, while foreign exchange inflows would be to the tune of Rs 3,53,000 crore.
According to the study, IT exports from over 6,000 STPI units constituted 97.8 per cent of the total infotech exports of $23 billion in 2005-06.