The Finance Ministry has clarified that India's software firms such as Infosys, TCS and Wipro can send IT engineers to clients abroad and claim income tax benefits.
The clarification was issued by the Central Board of Direct Taxes (CBDT) in response to the apprehensions expressed by the industry with regard to taxation of profits from software exports after tax authorities started issuing notices and raising tax demands.
“The software developed abroad at a client’s location would be eligible for tax benefits because these would amount to deemed export,” CBDT Chairperson Poonam Saxena said in a statement.
He also said deployment of manpower abroad and transfer of a software unit from one special economic zone to another would not impact these concessions.
The domestic software industry has been getting tax incentives under the provisions of Sections 10A, 10AA and 10B of the Income Tax Act.
The clarifications were based on the recommendations of the Rangachary Committee, which was appointed by Prime Minister Manmohan Singh in July last to address the concerns of the software industry.
These efforts are part of the exercise taken by the Finance Ministry to restore investor confidence and ensure a non-adversarial regime.
There were disputes in the interpretation of the tax laws on whether on-site development of computer software qualifies as an export activity for tax benefit and whether deputation of technical manpower for such activity is eligible for tax deductions.
It further said profits earned as result of deployment of technical manpower at the client’s place abroad specifically for software development pursuant to a contract between the client and the company would be deemed as profit earned from exports.
Nasscom, the industry body that represents the IT industry welcomed the clarification and expressed hope the assessments and past denials would be suitably resolved taking in to cognizance these clarifications, the Business Standard reported.
While this is a positive step, it is important that the implementation is carried on efficiently. We urge that benefits denied in the past be reviewed in light of this move, and there be swift closure of cases for the Industry to benefit from this," Nasscom President Som Mittal said in a statement.
Among other issues flagged by the software industry, the CBDT also clarified that companies could continue to enjoy tax holiday even in case of physical relocation of a SEZ (special economic zone) unit to another SEZ unit.
Besides, R&D activities for engineering and design by software companies would be eligible for tax deductions.
With inputs from PTI
Updated Date: Jan 20, 2015 17:56 PM