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Remove IT services from purview of tax: Nasscom

BANGALORE: With the Union Finance Minister P. Chidambaram set to hold discussions with various trade bodies next week, the National Association of Software and Service Companies (Nasscom) has sent its pre-budget memorandum.

A key issue, the apex body for the software and IT services sector says, is to have a distinct category of “Information technology services” and remove this from other categories for assessing service tax. The association wants the government to exclude from the scope of “manpower recruitment” services essentially “technical assistance in computer software engineering” and align service tax exemption given to SEZs (special economic zones) to STPI (Software Technology Parks of India) and IT export units.

Nasscom wanted the continuation of the STPI scheme beyond 2009 to sustain the IT-BPO export earnings now estimated at $32 billion and to match the incentives offered by other countries to attract Indian IT and BPO companies.

The removal of ‘tax holiday’ for the non-BPO sector could be linked to the signing of the totalisation agreement with the U.S. Government as recommended by the Kelkar Committee.

In regard to Fringe Benefit Tax on stock option plans for employees, the association feels, “for all practical purposes, it is a surrogate income tax collected from the employers and there is ambiguity whether FBT is applicable to stock options offered by a foreign company to employees of its Indian branches. To help Indian IT businesses meet ‘borderless competition’, a system of consolidated tax returns for group entities is necessary”.

The association has asked the finance ministry to consider deleting, with retrospective effect, complex procedures required now for export of software, a major foreign exchange earner for India.

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