'The IT industry welcomes this move, which was on expected lines. This allows companies to prepare for the sunset exemption clause much better given the current tougher global environment,' chief financial officer of Wipro Ltd. Suresh Senapaty, told Thomson Financial News.

Also, this makes the case of STPs fair at par with the export oriented units (EOUs), which had been assured of such extension as part of the Exim policy, Senapaty added.

Shares of software companies rose after Chidambaram said income tax exemption for Indian outsourcers based in technology parks will be extended to March 31, 2010, from next year, while he was replying to a debate on his budget proposals in parliament.

'The extension of (the) tax holiday for IT companies has been very timely and will help face the impending challenges of prevailing global economic uncertainties as well as strengthening (the) Indian rupee,' N. Ramachandran, a member of board and chief financial officer of iGATE Global Solutions said.

'It is indeed good news for iGATE as our effective income tax rates will now be several percentage points lower for the financial year 2009-10,' he added.

Archana Srinivasan, vice president of finance, Cybernet-SlashSupport said: 'This step will give some reprieve to the STPI units and also help them retain their competitive edge, especially in the current market scenario of the fluctuating rupee.'

According to Ravi R an IT analyst at Karvy Stock Broking, the growth for fiscal year 2010 for the IT sector, which has been going down due to the effective tax rate increase, will now be reinstated.

'The companies will have a lot more time to acquire land under the Special Economic Zones (SEZs)-- land acquisition is a painful process in the country -- as the STPI regime continues,' the analyst said.

Pankaj Kapoor, an IT analyst with ABN Amro said that the move is good news for the industry, especially when fears of a possible U.S. recession is looming large.

'Given the delays in construction, meeting targets for software companies have become extremely difficult. With this extension, the software firms get one more year to plan,' Kapoor said.

'This decision is particularly beneficial for BPO companies and the small and medium segment, who have been greatly impacted by the rupee appreciation, inflation and signs of slowdown of the U.S. economy,' Som Mittal, president of India's top IT trade body, the National Association of Software and Service Companies (Nasscom) said in a statement issued in response to the government's move.

STPI is an autonomous society set up by India's Ministry of Information Technology in 1991 with the objective of encouraging, promoting and boosting software exports from India.

Shares of Tata Consultancy Services, India's biggest software maker, rose 3.15 percent to 910.80 rupees at the close of trading on the Bombay Stock Exchange.

Infosys Technologies the second-largest software maker, was up 5.15 percent at 1,750.75 rupees, while Wipro, the third-biggest, gained 4.7 percent to 479.20 rupees.

The IT index of the Bombay Stock Exchange closed at 4,237.81, up 5.24 percent, while the overall Sensex closed at 17,378.46, up 2.13 percent.