Giving some relief to information technology (IT) and IT-enabled services (ITES), the government on Thursday clarified that tax incentives to such companies would continue if they fulfill prescribed conditions under the Income Tax Act.
The clarification came on the basis of a report of a committee that had been set up to go into grievances of the sector arising from tax-disputes and litigation on perceived impropriety in tax holiday claims.
The panel was chaired by former Central Board of Direct Taxes (CBDT) chairman N Rangachary.
Based on the committee’s report, the CBDT clarified that tax holidays should not be denied to an IT unit merely on ground that it had relocated from one special economic zone (SEZ) to another. Setting up a fresh unit in the same location as an existing unit --- without splitting or reconstructing an existing business --- would not disqualify a company for tax benefits, it was further clarified.
“Our earlier circular 694 was not fully understood the industry and caused dispute. The committee report clarifies direct tax issues which are eligible for benefits under sections 10A, 10AA and 10B,” said CBDT chairperson Poonam Kishore Saxena.
Software developed abroad at a client’s site would also be eligible for benefits under deemed export category. CBDT also said it is not necessary that the company maintains separate books of accounts for eligible units to claim tax benefits under sections 10A and 10B.