Software industry peeved with Budget

Software services and IT-enabled companies will have to pay about 12 per cent, reports Prerna K Mishra.
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Published on Mar 01, 2007 02:05 AM IST
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None | ByPrerna K Mishra, New Delhi

The Budget must surely have pleased Narayana Murthy, the only one who is game for software being brought under the tax net. For the rest of the software services sector, Finance Minister P Chidambaram's speech served a much-evaded blow.

The sector has been brought under the Minimum Alternate Tax (MAT) net and software services and IT-enabled companies will have to pay about 12 per cent.
And Chidambaram did it with finesse, without as much as mentioning the software sector. Quietly, he extended MAT to the income of companies that have been claiming deduction under Section 10A and 10B of the Income Tax (read software services and BPO sector).

"The industry is dismayed as they had chalked out business plans keeping in mind the sunset clause of the Software Technology Park Scheme, where the sops come to an end in 2009. Withdrawing some sops two years in advance does not send the right signals," said National Association of Software and Services Companies president Kiran Karnik.

Combined with the one per cent education cess, ESOPs being included under FBT and dividend distribution tax, there does not seem to be any silver lining for the sector that contributes more than 5 per cent to India's GDP.

"While the industry was expecting an extension of the tax holiday beyond 2009, this modification is counter-intuitive. Also, service tax on commercial leased premises will have a direct bearing on the cost of operations for the sector," said Cognizant president R Chandrasekaran.

"The budget seems to be against the software and ITES sector. It is a high-growth industry with monumental impact on the economy in general and employment in particular. The tax comes a bit too early in the day for the export-oriented sector," says WNS Group CEO Neeraj Bhargava.

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