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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 percent — on the effective tax rate — because of this extension. Normally, companies have about 50 percent business located in technology parks, export revenue from which is fully tax-exempt.
In a letter to the prime minister,
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.”
While welcoming the extension, Satyam Computer Services said an extension for a longer time period was desirable. “An extension for a longer period would have been more beneficial. Still, we are appreciative of the finance minister’s move to back a sector that creates large direct and indirect employment opportunities,” Satyam CFO Srinivas Vadlamani said.
The industry had been asking for an extension of another 10 years, at least for those companies which have not benefited from the sunset clause. However, the measure is likely to provide immediate relief to the sector hit hard due to sharp rupee appreciation in the past one year. “This is a welcome relief for software companies. Now, we have about two years to take the matter of providing further relief, at least to small and medium companies. In the next two years, we would try to persuade the government to give some special incentives to the firms based in tier-II and tier-III towns,” Nasscom president Som Mittal said.
Communications minister A Raja had last week written to Prime Minister Manmohan Singh asking him to interfere in the matter. Raja had argued that as the commerce ministry had announced extension of tax concession for 100 percent export-oriented units (EoUs), the same should be applied to the IT companies, too.
Under the STPI scheme, companies are totally exempt from any kind of corporate tax on software exports. Extension of the scheme would result in companies paying an effective tax of about 22-23 percent on the same. “Had the scheme not been extended, software companies’ total tax outgo may have gone up by 5-7 percent,” MindTree Consulting chairman and managing director Ashok Soota said.
Industry players have also expressed their hopes for further extension of the scheme because of its larger role in the country’s economy. “The extension of the STPI scheme will further strengthen the IT industry and hopefully, pave the way for further extensions,” TCS CFO and ED S Mahalingam said.
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