Indian government extends tax holiday for software companies

EASING SOME OF THE worry and uncertainty for export driven software companies in India, Indian Finance Minister, Palaniappan Chidambaram, announced yesterday that the government would extend a tax holiday scheme by another year.

The tax holiday, which was set to expire in March 2009, allows software firms in technology parks to only pay taxes on the business they conduct within India, meaning that revenues from exports are tax exempt. This means a company could get away with paying between 12-15 per cent tax as opposed to about 22 per cent tax.

The move was a definite relief for the industry, which is already having to tighten it’s belt due to the faltering US economy. Last week the INQ reported that foreign company outsourcing to India could well become a thing of the past for small to mid-sized technology firms, because of increasing costs in rent, salaries and the uncertainty about the extension of the government’s tax holiday.

India has an estimated $64 billion software service sector with the US accounting for over 50 per cent of the sector's revenue. That’s why a slowdown in the US economy, as well as a stronger rupee meant that the future of Indian outsourcing was looking rather shaky.

But with the government tax holiday extension, things may not look as bleak as they did a week ago. Som Mittal, president of IT lobby group, National Association of Software and Service Companies (Nasscom) professed to being " very happy" with the announcement, adding, "This has come at the right time."

The extension injected hope into companies and investors alike as was reflected by a surge in share prices in India's top export-driven software-service firms.

India's second-largest software services exporter, Infosys, saw shares shoot up 4.5 per cent, whilst Tata Consultancy Service shares got a boost of 2.8 per cent and Satyam Computer Services climbed 7.7 per cent in a Mumbai market that was up 2.1 per cent overall. The sector index was up 4.7 per cent. µ

L’Inq
Financial Express

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