Govt extends tax concessions on STPI by a year

Picked from The Economic Times.

In a much-awaited relief for the IT industry, software companies can now enjoy benefits of the Software Technology Parks of India (STPI) scheme for another year. The government has extended the tax concessions under Section 10A of the Income Tax Act to March 2010. The scheme was to expire in March 2009 under the sunset clause provided in the scheme. On an average, IT companies would get a revenue benefit of at least 5-7% — on the effective tax rate — because of this extension. Normally, companies have about 50% business located in technology parks, export revenue from which is fully tax-exempt. In a letter to the prime minister, Union IT & communications minister A Raja said: “I thank you on behalf of my ministry and the entire IT industry for your far-sighted decision to extend the STPI scheme. This will certainly help the IT industry, especially the small and medium enterprises which have been under tremendous pressure due to the rupee appreciation, wage inflation and several other factors. This would give us the encouragement to build up the momentum to meet our commitment of achieving IT exports of over $60 billion by 2010.” The relief has come after intense lobbying from the communications ministry and the industry. Finance minister P Chidambaram made the announcement in Parliament on Tuesday.
The move will benefit smaller companies more because SEZs have remained off-limits for them. “This is a good move and benefits small- and medium-sized companies who were finding it difficult to move into SEZs due to space crunch and high rentals. Most of the larger companies are already pursuing their SEZ plans aggressively. This move will enable them to enjoy the tax benefits further,” said Infosys Technologies CFO V Balakrishnan However, the biggest of all bonanzas lies in the fact that the small firms will get about two years to chalk out their future. For instance, those like KTwo Technology, an IT services start-up with revenue of $1.58 million in the first year of its operation, stands to benefit immensely. As its CEO Ananth Koppar put it: “At least, the small companies will get a breather for one more year.”

Small IT companies may get tax holiday beyond 2009

Picked from The Economic Times.

Government may extend income tax holidays to small and marginal IT companies beyond 2009, IT and Communications Minister A Raja said on Thursday.
Exemption from paying income tax for IT companies is to end in 2009.
"I have met Prime Minister (on the issue). PM is inclined to give some relief.... We are of the view that small and marginal enterprises should not suffer. The matter is under consideration," he told the Rajya Sabha during the Question Hour.
Raja said he had also met Finance Minister P Chidambaram on extending tax break for another 10 years but the "Finance Minister had some reservations."
The extended tax breaks should not go to big and flourishing companies who have already utilised the previous tax breaks, he said, but did not specify when a decision would be taken.
The Minister said the slowdown in the US economy has so far not had any overall significant direct impact on the growth of the Indian IT-BPO sector. However, the share depreciation of the US dollar over the past year has added significant margin pressure on the IT industry.
Raja said industry body NASSCOM does not have any information on reduction in salaries in IT industry but there had been indications that the annual increments to employees may be slightly lower.
The National Association of Software and Services Companies (NASSCOM) has indicated that the data on salary cuts if any would be available only after the analysis of the annual results to be announced by the companies.

Employers must quote PAN in TDS returns

Picked from The Econonic Times.

Employers will have to quote the Permanent Account Number of their employees while submitting TDS (tax deducted at source) returns to the government as tax refund has become difficult without PAN after annexure-less forms were introduced. Income Tax department would not accept these returns if employers fail to quote PAN in at least 95 per cent cases of salaried employees and 85 per cent cases of non-salaried staff. Employers who do not comply with the rules would be treated as non-filers and could face penal consequences, an official release said on Tuesday. Quoting PAN is important because the IT department has prescribed new return forms without attachments from assessment year 2007-08. Tax refunds can only be given to the employees on the basis of information made available by employers through TDS returns, the statement said.

IT Dept asks Microsoft to pay Rs. 700 cr tax

Picked from The Economic Times.

Software giant Microsoft has to pay about Rs 700 crore as income tax, including interest on royalty income generated from sale of software in India. The Comission of Income Tax Appeals, which is hearing a case filed by the IT department, has held that price charged for use of Microsoft's software in India is royalty and tax is payable on it. It has determined that the royalty income is Rs 2,240 crore for the six years to 2005 (1999-2005) and not Rs 868 crore as originally assessed. Accordingly, official sources said, Microsoft's estimated tax liability on royalty stands at Rs 700 crore, including interest. Reacting to the decision, Microsoft spokesperson in India said, "The case is an old issue relating to financial year 1999 to 2004 and for an overseas Microsoft entity. Microsoft believes that it is in full compliance with Indian tax laws and the income tax treaty agreement between India and the US." Since it is an appellate order, Microsoft is reviewing the order and will determine the course of action accordingly, the spokesperson added. The sources said the CIT(A), handling international taxation cases in Delhi, held that the Gracemac Corporation, a 100 per cent subsidiary of Microsoft is liable to pay income tax on its gross royalty income earned out of licensing of softwares to Indian customers. The total gross royalty income for the six assessment years starting from 1999 to 2005 is computed to be about Rs 2,240 crore. Going by 15 per cent tax on royalty, the total tax liability on the Microsoft subsidiary is calculated to be about Rs 350 crore. With addition of interest, the total liability is likely to be Rs 700 crore, they added.