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Infotech Firms Heave a Sigh of Relief

April 30, 2008 | The Telegraph
New Delhi/Mumbai, April 29: The government has extended the tax exemption schemes for the IT sector by a year.

Finance minister P. Chidambaram today announced in Parliament that tax exemptions under the software technology park of India (STPI) scheme and the export oriented unit scheme for IT-BPO companies would be applicable till March 31, 2010. The schemes were to expire on March 31, 2009.

“It has been decided to amend sections 10A and 10B to extend the tax exemptions to March 31, 2010, in order to give the government sufficient flexibility to take a well-considered decision on these tax sops,” Chidambaram said.

Under the schemes, infotech and BPO companies get 100 per cent tax deduction on profits. There are more than 8,000 STPI-registered units and 2,300 EoUs spread across the country.

“This decision is particularly beneficial for BPO companies and the small and medium segment, which have been greatly impacted by the rupee appreciation, inflation and signs of slowdown of US economy,” the National Association of Software and Service Companies (Nasscom), the apex software body, said in a statement.

“This benefit will also give us time to come up with other workable and acceptable options for the future, beyond 2010,” Nasscom said.

Rajiv Mehta, analyst with Indiainfoline.com, said, “This is an announcement that the mid-cap IT companies in the country had been waiting for. The mid-cap IT stocks have already seen a rally today. Prices were up 5 to 7 per cent. There is headroom for another four to five per cent.”

According to Rangachari Desikan, group CFO and director finance of Mastek Ltd, “It was a long pending demand of the industry that has been fulfilled. The appreciating rupee had put severe pressure on the revenues of IT companies.

“The IT industry contributes significantly to the country's economy. This extension of tax holiday will give us more time to adjust to the changing economic dynamics,” he added.

Aztecsoft chief financial officer V. Sundrajan said, “The move would definitely improve the profit after tax for the next financial year. Overall the industry should see an improvement in bottomlines of anywhere between 4 per cent and 6 per cent.”

Nucleus Software CEO and managing director Vishnu R. Dusad said, “The scheme should be extended by another 10 years for small and medium enterprises to give them adequate opportunities to grow.”

According to analysts, the country's software exports touched Rs 1,44,000 crore in 2006-07, with 95 per cent of exports coming from units in STPI. IT analyst Sudipto Basu said, “The extension will enable India to remain competitive on the global platform.”

The IT sector accounts for 5.4 per cent of India’s gross domestic product.