IT Majors to Receive Tax Breaks

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Jan. 14 – In a bid to revive the Indian Information Technology sector due to the lack of foreign funds pouring in and the Satyam Computers scam case, the Indian government has decided to amend the income tax law relating to tax exemption for units operating out of special economic zones (SEZs). The move which will provide a boost to the bottomlines of large Indian IT companies such as Infosys, Wipro and TCS seeks to provide a 100 percent exemption on profits to SEZs set up by IT majors like Infosys, Wipro and TCS under the parent companies for the first five years.

“We have finally been able to convince the finance ministry that Section 10AA(7) of the I-T Act is an anomaly. All SEZs should be entitled to 100 percent tax exemption on profits. The relevant notification will be issued by the Central Board of Direct Taxes shortly,” a commerce department official told Economic Times.

Section 10 AA (7) of the I-T Act states that only a proportion of profits of a SEZ unit, based on the proportion of export sales from the unit to the total turnover of the parent company, will be exempt from taxation. For instance, if an SEZ unit exports 50% of the company’s total turnover, then the tax exemption on the profit that the parent company makes from exports will be restricted to only 50 percent instead of 100 percent as otherwise stated in the SEZ Act.