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Rangachary panel moots easier tax rules for IT sector
September, 26th 2012

A high-level panel appointed by Prime Minister Manmohan Singh and chaired by former CBDT chairman N Rangachary has recommended a liberal tax regime for the IT sector. CNBC-TV18's Aakansha Sethi reports.

There were a lot of concerns about how the clause on royalty and connectivity charges would be implemented retrospectively. CNBC-TV18 learns that the Rangachary committee may have suggested a prospective amendment for Section 917 -- that is on the royalty and the connectivity charges -- which will impact the IT sector.

The second thing is that they have recommended tax exemption for onsite services and distinction between pure body shopping and onsite services. The panel says the CBDT should issue a circular -- pure body shopping will be taxable but otherwise onsite services will be exempt from taxation.

There were concerns that after the sunset of the Software Technology Parks of India (STPI) scheme, the IT industry may move to the special economic zones (SEZs). However, the panel has suggested that Minimum Alternate Tax (MAT) on SEZs should continue.

They have also said for development centers that transfer pricing should be based on a simple cost plus method. The Prime Minister's Office (PMO), which had set up the Rangachary committee, specifically said that India has to compete with other developing nations for a pie in the share of setting up of development centers on contract basis for research and development purposes and hence they had highlighted the emphasis of this.

Rangachary committee has put to rest tax-related concerns of the IT sector. The reports have been submitted to the ministry of finance. However, it remains to be seen when it would be made public and when the finance ministry would actually accept these recommendations.

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