Bangalore: The Bangalore Chamber of Industry and Commerce (BCIC) has drawn Union Finance Minister P. Chidambaram's attention to critical issues for consideration in the budget, including the definition of corporate tax, fringe benefit tax (FBT), international and non-residents taxation, personal taxation and capital gains.

In view of the time limit for realisation of export proceeds by Software Technology Park units, BCIC has asked for a suitable amendment in the Act so as to allow tax benefits and repatriate export proceeds into India within 12 months from the date of exports, or six months from the end of the financial year, whichever is later.

Further on the depreciation rates of plant and machinery, BCIC has recommended to restore the depreciation rate to 25 per cent from the current 15 per cent. This will in turn help in the capital formation for further investment in new plant and machinery.

On boosting research and development activity in various sectors, the BCIC has suggested that time limit for approval of companies has to be extended by another 10 years. Further, the provisions in the rules restricting the companies to be "exclusively" engaged in research and development activity need to be relaxed.

The BCIC has sought suitable changes in the Income Tax Act to treat the Indian Business Process Outsourcing (BPO) companies as independent service provider and not as an agent of foreign principal company for the assessment of tax liability.

The Central Board of Direct Taxes (CBDT) should clarify payment of service fee to BPO companies at arms length by foreign company will be exempt from payment of tax by the foreign company in India. A provision where that payment by the foreign entity to the Indian BPO was at arm's length price should be made and there should be no need for the foreign entity to file tax returns in India.

Referring to the Fringe Benefit Tax vis-à-vis international taxation, BCIC wants the meaning of the term `based in India' be clearly defined based on one or more parameters such as physical presence in India, taxable presence in India (resident in India), rendering of services in India and being on the payroll of an Indian company.

On the levy of FBT on leave travel assistance (LTA), BCIC has also demanded that the Finance Minister should clarify whether the exempt portion of LTA was liable to FBT or not.

Seeking clarity on the implication of medical reimbursements, it was not clear whether FBT would be applicable on the whole sum of Rs. 15,000 as stipulated in CBDT's circular or the sum in excess of it would be liable to FBT.

In view of the proposed Exempt-Exempt-Tax Method ("EET") in place of Exempt-Exempt-Exempt method ("EEE") BCIC has recommended that it should be bought in a phased manner. As the investments made by assessee are source of funding of various long-term infrastructure projects, the taxation of maturity amounts would impact the investments strategies of the assessees.

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