Nasscom urges Govt to retain current status for the Software and Service industry in Union Budget 2002

DQW Bureau
New Update


National Association of Software and Service Companies (Nasscom), the apex industry association of IT Software and Service companies in India, has submitted its recommendations for the Union Budget 2002 to the Government, for consideration. Nasscom is urging the government to remove certain procedural bottlenecks in order to further growth in the Indian Software and Services Industry.

Some of these include self declaration of Softex forms, clarification on on-site software development, tax benefits under Section 10A/10 B, exemption of export profits on amalgamation/demerger, 80 HHE: Recommendations presented by Nasscom include that the Softex form as well as Forms A and B should be dispensed with or be made into Self Declaration Forms to avoid unnecessary paper work and delays in processing.


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, STP. Nasscom has recommended that a clarification be issued that onsite services will continue to get income tax exemption with retrospective effect under the new Sections 10A/10B of the Income Tax Act.

Nasscom has also recommended that CBDT should issue clear guidelines on the method of computation of deduction under Section 80HHE and clarify the term technical services to exclude:

Expenses incurred in developing software onsite, Expenses in foreign currency on marketing offices outside India and Expenses incurred on foreign exchange on



Section 10A/10B of Income Tax Act is acting as a deterrent to Mergers and Acquisitions. Another issue in Section 10A/10B is regarding change in ownership and the tax treatment.

Another recommendation by Nasscom that affects Indian companies is setting up overseas subsidiaries. Indian companies export software using various methods of operation and many times, they do not open branch offices in USA, but open their subsidiaries. Technically, there may be a difference between a branch office and a subsidiary, but not for practical purposes.

Both do same kind of software development work.


Nasscom has recommended that computer software development and IT software services should be continued to kept outside the purview of Service Tax in the domestic market. Various state governments have already reduced sales tax on software with the government of Karnataka rolling back the sales tax on software to zero percent.

Nasscom has demanded a tax moratorium of not having any fresh tax on e-commerce at least for the next five years.

As per the current Exim Policy and Customs notifications, all units in EOU/EPZ/ STP are physically bonded i.e. equipment in these units cannot be taken out without prior permission of competent authority.


"As the whole gamut of delivery of software has oriented itself towards use of telecom links, the very reason of physical bonding has lost its meaning and therefore, we have requested quick implementation of Government's intention of removing physical bonding at STP, EOU, EPZ", Karnik said.

Nasscom has recommended allocation of resources for enhancement of infrastructure like airports and power at the major software cities of India and has also requested for at least 2 Gbps of national Internet bandwidth.

Some other recommendations include implementation of the recommendations of national IT task force for bringing down the street price of software and to retain zero import duty regime on computer software.

While presenting the recommendations, Kiran Karnik, President, Nasscom said, "The Government has been very supportive to the Indian Software and Service industry and we hope that it will continue to retain the incentives provided to help strengthen India's position as a leading software superpower worldwide. In order to sustain growth and reach revenues of US$ 87 billion by 2008, the industry is looking forward to the assistance and assurance from the government that there will be no fresh imposition of tax and that the incentives continue to be long term."

He further added, "We also request the simplification of certain procedures that is currently hindering smooth transaction of business, as this could be crucial. The government needs to take initiatives to make India an attractive IT destination such as removing procedural obstacles and delays in the area of infrastructure, opening more STPs, enhancing telecom infrastructure, reducing the cost of computerization, setting up more educational institutions in the lines of IITs or IIITs and boost e-commerce activities."