The Hindu Business Line : Budget IT sector

The Budget proposals have brought little cheer to the IT industry. The introduction of Minimum Alternate Tax (MAT) for STP units and 100 per cent export-oriented units (EOUs), which would have otherwise remained insulated from income-tax at least until March 2009, is clearly a retrogade measure.

The creditability per se of this MAT against future taxes brings no consolation as fundamentally, this is tantamount to a partial withdrawal of tax holiday.

Increase in the base Dividend Distribution Tax (DDT) rate to 15 per cent and the additional cess of 1 per cent (applied to all taxes) will impact profitable IT companies. As DDT is not creditable in most countries outside India, for captive units of foreign companies, the sunk DDT cost will only increase. Another retrograde measure is the extension of service tax to commercial leases, which will increase the cost of doing business. On the positive side, the test of "export of services" has been made simple for certain categories.

For instance, instead of "delivery and use outside India", the test is now that the service should be "provided from India and used outside India".

This will facilitate access to the `export'-related exemption for players in the ITES space.

Bharat Varadachari

Partner

Ernst & Young

Chennai

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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