NASSCOM satisfied with the way government has acted upon its recommendations

Asim Raina & Preety Raheja

The last, but not the least, in our series of run up to the union budget is NASSCOM's recommendations for the budget 2001. The DQ Week spoke with Dewang Mehta, President, NASSCOM, and he seems to be quite satisfied with the way government has been supportive to the cause of the software and services industry and expects the continued assistance in this budget as well.

Clarification be issued that onsite services will continue to get income tax exemption 

 Two of the most important demands of NASSCOM are related to Section 10A/10B of Income Tax Act. This section provides for Income Tax holiday to units registered with 100 percent EOU, EPZ, and STP. "The problem with the sections is that they have narrow definition of computer software with the result many Income Tax official believe that onsite services exports are not exempted from income tax under the new sections", said Mehta.

Also, this new definition in section 10A/10B is different from the one in section 80 HHE which clearly and explicitly allows exemption for onsite services. 

Changes required in Section 10A/10B of Income Tax Act for mergers and acquisition 

Another problem in Section 10A/10B is regarding change in ownership and the tax treatment. As per the provision of new Section 10A/10B, if during the year, more than 51 percent of shareholding ownership changes in 100 percent EOU, STP, EPZ, then the company will cease to get income tax exemption from that year.

"This provision not only adversely effects listed companies but also unlisted companies. It also hits SMEs and start-ups, especially where the shareholding pattern may change with exit of venture capitalists", complained Mehta. Moreover, provision in the section is acting as deterrent to mergers and acquisitions.

No tax on e-commerce transactions

NASSCOM has demanded a tax moratorium on e-commerce at least for the next five years. Mehta said, "The Net commerce cuts transaction cost, so we are not demanding any concessions, but we have demanded that tax systems should treat transactions equally irrespective whether they are conducted through conventional or electronic means."

Allow software units in backward areas to get tax holiday NASSCOM has requested the finance ministry to also include IT software and services units in the definition of 80IB of the Income Tax Act. "This will help and proliferate setting up of software units in Goa, Madhya Pradesh, North-East as also new states of Uttranchal, Jharkand, Chattisgarh and many backward areas of other states.

ISPs to remain outside the purview of service tax

Mehta said, "Any imposition of service tax on ISPs will be detrimental to the growth of Internet."

Allocation of Rs 1,500 crore during 2001-02 for upgrading RECs and new IITs/IIITs

NASSCOM wants that under the tenth five-year plan, the Government should envisage an IIT or even a IIIT in every state of the country. It has further demanded an allocation of at least Rs 1,500 crore during 2001-02 for partial upgrading of 43 RECs to the level of IITs and starting new IIITs, during the year.

More allocation of resources for enhancement of infrastructure 

NASSCOM has requested 2 GBPS of national Internet bandwidth in addition to retaining zero import duty regime on computer software and infrastructure facilities such as airports, roads, power at the major software cities of India.