The Union finance minister on Monday announced a one-year extension of the tax holiday scheme for software exporting firms up to March 2011.
In his Budget speech, Pranab Mukherjee also announced an extension of exemption of a counter veiling duty (CVD) of 4 per cent on import of components for manufacture of mobile handsets by one year.
“In order to tide over the slowdown in exports, I propose to extend the sunset clauses for these tax holidays by one more year — financial year 2010-11,” said Mukherjee in his Budget speech. The scheme was due to expire on March 2010.
The IT industry had pointed out that it was facing difficulties in the assessment of software which involves transfer of the right to use after the levy of service tax on IT software service. “To resolve the matter, I propose to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD,” said Mukherjee.
The Fiscal bill has also proposed to create an alternative dispute resolution mechanism within the Income-Tax Department for the resolution of transfer pricing disputes. To reduce the impact of judgemental errors in determining transfer price in international transactions, the Bill has proposed to empower the Central Board of Direct Taxes (CBDT) to formulate ‘safe harbour’ rules. “This is particularly relevant for such companies in the Information Technology (IT) sector,” said Mukherjee.
“Most of our demands have been met by the finance minister,” said Som Mittal, president of IT and BPO association Nasscom. On extension of export benefits, Mittal said: “Though the industry had asked for a five-year break, for short term, the one-year tax holiday is well-timed to tide over the slowdown.”
“Extension of 10A/10B exemptions by one more year is a move that is more emotional than of actual benefit since most STPs would have come out of the tax holidays,” said S Gopalakrishnan, CEO and Managing Director of Infosys Technologies.
Telecom handset manufacturers have welcomed exemption from CVD on import of component. “The exemption will continue to ensure affordable access to mobile phones and thus drive telecom proliferation, a driver of inclusive socio-economic growth in today’s knowledge economy,” said SD Shivakumar, Managing Director, Nokia India.
“We feel that more could have been done to encourage local manufacturing and exports,” said NK Goyal, president Communications & Manufacturing Association of India, (CMAI).