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Friday, February 19, 2010

IT industry seeks tax sop extension in budget

India's export-driven IT sector has sought an extension of a key tax benefit scheme to beyond its 2011 deadline in the budget, which industry players say will help small and medium technology companies.

The software industry wants units in software technology parks or STPIs to be treated at par with special economic zones or SEZs, which are duty-free economic enclaves where units can claim tax breaks for longer than 10 years, besides other perks.

"One of our demands is that STPI units get the same benefits as SEZ units keeping in mind the small and medium enterprises," said Som Mittal, president of National Association of Software and Services Cos (NASSCOM), a software lobby.

"Large companies are already in the 21-22 percent tax bracket so they will not be impacted by the extension of the STPI scheme. There will be no loss to the exchequer too as these big companies are paying these taxes," Mittal said.

The government had introduced the Software Technology Parks of India (STPI) scheme in 1991 to encourage software exports, which helped make India one of the world's leading hubs for software and business process outsourcing.

In its budget last July, the government had extended tax benefits for units in STPI by a year to March 2011. Units set up in these parks are eligible for a 10-year tax holiday, besides other perks.

Mid-cap companies such as MindTree and HCL Technologies Ltd are likely to benefit from the extension, said Harit Shah, technology analyst with Karvy Stock Broking.

"We expect a further extension in light of the fact that the industry has just recovered from a severe global slowdown, with mid-sized IT companies, in particular, bearing the brunt of slowing order flows," Shah said.

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