Indian IT industry seeks removal of dual tax on software products

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The Indian information technology (IT) industry recently sought relief from double taxation on software products, and that the sector be cushioned in view of the protectionist measures being adopted in the global market.

“We have flagged our concerns with regard to double taxation on software products. While the GST (goods and services tax) will address that, we have suggested that some measures be taken to address the issue till the time GST comes into force,” industry body Nasscom president R. Chandrashekhar told reporters after a pre-budget meeting with Finance Minister Arun Jaitley.

The industry has earlier represented on the anomaly of a situation whereby while both VAT and service tax are levied on software purchased domestically, the government levies only service tax on a software of foreign origin downloaded from the internet.

“The larger issue for Indian IT sector is to remain competitive in view of the protectionist measures being taken in some large markets,” Chandrashekhar said.

“Against the backdrop of the rising protectionism, the need for a conducive domestic environment is all the more critical,” said a Nasscom statement said. “Retrospective amendments and ambiguous provisions are a serious detriment and should be avoided.”

A finance ministry release here said the IT sector representatives also suggested the provision of Place of Effective Management (POEM) be deferred by a couple of years.

As proposed with regard to POEM by Jaitley in last year’s budget, shell companies based abroad would have to pay taxes on their global income for a year if their place of effective management is India even for a day.

The industry suggested that there is need to create duty differential benefits for Indian IT hardware manufacturers especially in case of mobile and tablets.

IT players also urged Jaitley to provide them a staggered payment option on bonus payment to employees that companies are required to make under a notification issued by the labour ministry, effective since April 1, 2014.

“We have requested the government that retrospective orders should be avoided. Now labour ministry’s rule on bonus has become a law. We have asked to give us the option of staggered payment,” Chandrashekhar said.

IT majors including Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies, among others, attended the pre-budget consultations.