Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: form 3cd :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: due date for vat payment :: TDS :: VAT RATES :: list of goods taxed at 4% :: empanelment :: articles on VAT and GST in India :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt
 
 
News Headlines »
 Notification regarding extension of last date w.r.t submission of closing stock by dealer.
 Integrated Goods and Services Tax (IGST) Rules, 2017 (As on 15.11.2017)
 Central Goods and Services Tax (CGST) Rules,2017 (As on 15.11.2017)
  101st Constitution Amendment Act, 2016
 Pr. Commissioner Of Income Tax-6 Vs. Mccain Foods India Pvt. Ltd.
 Section 10 of the Income-tax Act, 1961
 Income tax returns filing: No tax on gift received from relatives in form of cash
 Income tax returns (ITR): Here is why you need to pay higher tax on other incomes
 GST Update On Issuance Of Debit Notes And Credit Notes
 How Mutual Fund Investments Can Help Save Income Tax
 Income tax returns (ITR) filing: Why small service providers need to get this benefit

Extend tax holiday for IT-ITeS
February, 16th 2009

The information technology (IT) and information technology enabled services (ITeS) industry has performed splendidly well over the past decade.

Availability of high quality skilled labour, low cost base and increasing advantage accruing from the learning curve have been the key driving force behind this sector. In addition, the conducive tax environment in the form of tax holiday benefits given to the industry under the Software Technology Park of India (STPI) and the Ex port Oriented Unit (EOU) schemes have also acted as a catalyst to the growth.

The IT/ITeS industry today constitutes an integral part of the Indian social-economic chain. The sectors contribution to GDP has increased manifold, now contributing more than 5 per cent of the GDP. With exports of $40 billion in 2007-08, the sector accounts for one-fourth of the countrys total exports. Further, according to the Ministry of Labour and Employment, IT services account for 12 per cent of Indias total employment, thus making it the largest employer in the organised sector.

Budget should focus on fertiliser issue

Tax benefits

At present, units operating under STPI or EOU schemes can enjoy income-tax deductions under Sections 10A and 10B of the Income-tax Act, 1961 in respect of export profits.

These deductions initially had a sunset clause of March 31, 2009, which meant the deductions would not be available beyond March 31, 2009. Based on the concerns raised by this sector, the tax holiday was extended by another year (that is, till March 2010).

However, the provisions of Minimum Alternative Tax (MAT) currently are applicable to companies operating under the STPI/EOU regime and, accordingly, tax at 11.33 per cent of book profit is payable by such companies. The STPI and EOU schemes also provide various indirect tax benefits (that is, exemption from excise, customs, etc.) which would continue to be available even beyond 2010.

Separately, the Government also introduced the SEZ scheme, whereby the units operating out of an approved Special Economic Zone (SEZ) are eligible for a deduction under Section 10AA of the I-T Act.

The provisions of MAT currently, as applicable to STPI/ EOU units, are not applicable in respect of profits of an SEZ unit.

The underlying objective of the SEZ scheme is to promote capital formation, generate employment and promote exports.

Though the SEZ scheme has been dubbed as a substitute for the STPI/EOU schemes, there is a concern that the policies under the SEZ scheme may not suit small- and medium-sized companies in the IT/ITeS sector, primarily due to large capital outlays and also because of the absence of large-scale operations required for reaping the benefits under the SEZ scheme.

Budget: Logistics players keep fingers crossed

Contribution to exchequer

As per the Finance Ministers speech in Budget 2007-08, the effective corporate tax rate in India is at 19.2 per cent.

In contrast, there has always been a perception that the IT/ITeS companies are zero tax companies, which does not appear to be correct. The IT/ITeS industry is typically paying taxes with an effective tax rate of 11-14 per cent.

Over and above this, one cannot also ignore the impact of the dividend distribution tax (DDT) of 17 per cent which is applicable on disbursements of dividends, the fringe benefit tax (FBT) paid by such service-driven companies and the contribution in the form of personal income-tax through the vast employment generated. Clearly, the industry is contributing its might to the national exchequer by paying significant taxes, a withdrawal of the tax holiday would increase the burden on such companies, especially in these challenging times.

Tax holiday for export, IT units may continue

The challenges

The most important issue before the industry is the matter of extension of the income-tax holiday. The following challenges make out a case in favour of why the extension of the tax holiday has to be extended beyond March 31, 2010:

The outlook for the global economic condition does not appear to be very promising, and one can expect tremendous operational and financial pressure in this sector in the coming days;

The cost advantage that India offers is fast depleting, and any increase in the tax cost would certainly increase the cost of doing business in India;

Other jurisdictions, such as China, the Philippines, Malaysia, Vietnam, and Central and Eastern European countries, which are competing with India for a larger share in the global business, continue to provide incentives. Absence of fiscal support to the Indian IT/ITeS sector would put the industry on the back-foot;

The personnel cost as a percentage of revenue in IT/ITeS companies is approximately 50 per cent compared to other industry average of 10 per cent. This clearly demonstrates the tremendous amount of employment that this industry generates. Withdrawal of the income-tax holiday could have an impact on the recruitment and compensation levels.

Considering the overall economic scenario, one cannot also lose sight of the disposable income generated by the IT/ITeS industry, which acts as a stimulant for other consumer-led sectors.

PM approves interim budget

An impetus at this juncture in the form of extension of the tax holiday under Sections 10A/10B would certainly go a long way in propelling the growth of the industry.

There is a clear expectation that a package would be introduced in the Interim Budget which will help the country to maintain the edge created by this sector and not let go the dominance created by India in the global market.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions