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Budget 2011: Software
As expected there was no surprise for IT/ITES sector in the Union Budget 2011-12. Rate of service tax was retained at the same level of 10%. As a continuation of initiative of phasing out the surcharge, it was reduced from 7.5% to 5%.Though there was an expansion in the rate of MAT but only by 0.5%. Against the market expectation, nothing was mentioned in relation to STPI issue. But this budget has touched upon issues related to double taxation and transfer pricing in terms of concluding discussions for 11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance Agreements (DTAAs) along with revision of provisions of 10 existing DTAAs and strengthening of Foreign Tax Division of CBDT (Central Boards of Direct Taxes). Also attention towards improving service delivery, accountability and transparency in governance of various schemes, UID mission, efficient tax administration, Mission Mode Projects for computerization of Commercial Taxes, E-stamping, the project on E-courts are welcome moves. Indian IT companies which have increased their focus on the domestic IT market have much to gain from increased usage of technology by the government.
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Extension of tax holiday provisions for STPI units in FY11-12. |
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Exemption from MAT and DDT for SEZ units |
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Avoidance of litigations for IT Industry for 10A/Transfer Pricing provisions. Companies want clarity with respect to certain terms in 10A provisions such as total turnover/technical services/onsite services etc. This would help avoid litigations, with retrospective effect.
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Rate of tax on services retained at 10% to pave the way for GST.
| | Rate of minimum alternate tax (MAT) on book profits increased from 18% to 18.5%. |
| Current surcharge of 7.5% on domestic companies reduced to 5%. |
| Increase in allocation towards educational program |
| MAT on developers of Special Economic Zones as well as units operating in SEZs.
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Reduction of the current surcharge of 7.5% on domestic companies to 5% will lower the tax burden of the companies |
| Small increment in MAT (from 18% to 18.5%) will not have a material effect. As due to reduction in surcharge, effective MAT will remain at the same level. |
| MAT on both developers of SEZs and units operating in SEZs will increase the tax burden of the companies |
| Progress on UID (generation of ten lakh Aadhaar numbers per day from 1st Oct, 2011), Technology Advisory Group for Unique Projects (TAGUP) will benefit domestic IT players |
| Projects on Efficient tax administration, computerization of commercial taxes, E-stamping, E- courts will boost the domestic IT industry as a whole
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IT companies like TCS, Wipro, Infosys, Mindtree and 3i Infotech that have a high focus on the domestic IT markets, will stand to gain from the initiatives proposed in the budget. |
| Increase in allocation for education and additional provisions for National Skill Development Fund are expected to aid the growth of IT based educational companies like NIIT, Educomp Solutions etc. |
| Companies that derive a substantial part of their book profits from the SEZ areas will face a higher tax impact due to the introduction of MAT in the SEZs.
| | The increase in MAT will have a marginal impact on the earnings.
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