Major Shaitan Singh
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Indian IT services industry is expected to reach $100 bn in revenues this year
The Indian IT services industry is expected to reach $100 billion in revenues this year, with exports contributing to about $69 billion. The industry impacts India's GDP by around 7.5% and employs close to 2.8 million employees, with an additional 2,30,000 employees expected to be added in fiscal 2012.
The indirect employment created in the economy could be four to five times that of the direct employment generated. Taken together, the IT services industry in India is one of the biggest employment creators in the country and has put the country on the global map.
A large part of the credit for the phenomenal growth of this industry goes to the support provided by the liberal tax policies provided for the industry by the government over the years.
Such policies allowed the industry to reinvest, to reinvent itself and helped companies achieve global scale. Over the years, the industry has matured and expanded its footprint into high value-added services such as consulting, products, intellectual property and so on. Today, the Indian IT services industry has the ability to compete head on with the best in the world.
However, of late, we have seen tax authorities in India taking an aggressive positionon certain tax benefits being given to the industry that give rise to a few issues that require urgent clarity from the government.
The first one relates to the taxation of profits earned from onsite activities or work done at client locations outside India. Explanation 3 of section 10A and explanation 2 of section 10AA clearly state that onsite activities are deemed to be considered as exports from India and warrant relevant exemptions. However, the tax authorities deny these exemptions as they do not consider these onsite activities as exports. This is nothing but denying an exemption that is explicitly provided under the law.
The second issue relates to the tax exemptions available for exports under the SEZ scheme. Indian software companies enter into an umbrella contract, Master Service Agreement (MSA), with customers that specify general conditions, the legal framework and so on, for their overall agreement.
On the basis of the MSA, customers then issue individual Statement of Work (SoW) or purchase orders for projects to be executed. The SoW clearly defines the scope of work and the price for each deliverable and helps define which of the activities are eligible for tax exemption.
The ministry of commerce, the nodal ministry to implement the SEZ scheme in India, issued instruction no. 70 on November 9, 2010, to allow for this tax exemption.
However, the income-tax department is unwilling to accept the diktat of the circular, expecting IT companies to make huge payments towards unjustified taxes. This clearly shows that two arms of the government are takinga totally different view on the same subject.
Indian IT services industry is expected to reach $100 bn in revenues this year: V Balakrishnan, CFO, Infosys - Economic Times
The Indian IT services industry is expected to reach $100 billion in revenues this year, with exports contributing to about $69 billion. The industry impacts India's GDP by around 7.5% and employs close to 2.8 million employees, with an additional 2,30,000 employees expected to be added in fiscal 2012.
The indirect employment created in the economy could be four to five times that of the direct employment generated. Taken together, the IT services industry in India is one of the biggest employment creators in the country and has put the country on the global map.
A large part of the credit for the phenomenal growth of this industry goes to the support provided by the liberal tax policies provided for the industry by the government over the years.
Such policies allowed the industry to reinvest, to reinvent itself and helped companies achieve global scale. Over the years, the industry has matured and expanded its footprint into high value-added services such as consulting, products, intellectual property and so on. Today, the Indian IT services industry has the ability to compete head on with the best in the world.
However, of late, we have seen tax authorities in India taking an aggressive positionon certain tax benefits being given to the industry that give rise to a few issues that require urgent clarity from the government.
The first one relates to the taxation of profits earned from onsite activities or work done at client locations outside India. Explanation 3 of section 10A and explanation 2 of section 10AA clearly state that onsite activities are deemed to be considered as exports from India and warrant relevant exemptions. However, the tax authorities deny these exemptions as they do not consider these onsite activities as exports. This is nothing but denying an exemption that is explicitly provided under the law.
The second issue relates to the tax exemptions available for exports under the SEZ scheme. Indian software companies enter into an umbrella contract, Master Service Agreement (MSA), with customers that specify general conditions, the legal framework and so on, for their overall agreement.
On the basis of the MSA, customers then issue individual Statement of Work (SoW) or purchase orders for projects to be executed. The SoW clearly defines the scope of work and the price for each deliverable and helps define which of the activities are eligible for tax exemption.
The ministry of commerce, the nodal ministry to implement the SEZ scheme in India, issued instruction no. 70 on November 9, 2010, to allow for this tax exemption.
However, the income-tax department is unwilling to accept the diktat of the circular, expecting IT companies to make huge payments towards unjustified taxes. This clearly shows that two arms of the government are takinga totally different view on the same subject.
Indian IT services industry is expected to reach $100 bn in revenues this year: V Balakrishnan, CFO, Infosys - Economic Times
,...just joking..i m very pro TCS...
