Indian Government to ease tax rules for IT sector: Report

The Indian government which recently mustered enough courage to go against its allies and introduce policy reforms in its $ 450 bn retail sector, is now trying to make tax rules easier for the $ 70 bn information technology industry, reports The Economic Times.

A high level panel appointed by Prime Minister Manmohan Singh and chaired by former CBDT chairman N Rangachary has recommended favourable tax treatment and a stable tax regime for software sector, the report said citing sources.

The IT sector has been struggling with compliance as interpreting certain tax rules has become extremely complex. The Income Tax department has also been cracking down on transfer pricing agreements as well as sales of packaged software. There are multiple court cases between companies and the Income Tax department with respect to selling packaged software and transfer pricing agreements.

Some of the issues the IT industry has been raising with the Government

  •  Minimum alternat tax (MAT) at 20% has choked cash flow. The industry ideally wants MAT to be not more than 1/3rd of the normal tax rate.
  • Imposition of MAT on profits generated form special economic zones (SEZ) beats the purpose of setting up SEZs.
  • Tax deductions are being denied on technical grounds overlooking judicial precedents. Government needs to clarify on many of these issues to reduce litigation.
  • Rules must be framed to clarify taxation on transfer pricing adjustments.
  • Introduce standard international practices to reduce litigation.
  • There is ambiguity and lack of clarity as regards to treatment of software being “goods” or “services”.
  • Lack of clarity on treatment of packaged software.
  • Tax on onsite activities as they are not considered exports.

In an 84 page pre-budget memorandum submitted to the government (copy with Pi), Nasscom,the Indian software lobby has sought clarity on hundreds of other tax related issues form the government.

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