Budget Impact on Software Industry                

Budget Impact on Software Industry       (updated - 07 July 2009)
The Indian software industry has something to cheer from the Budget 2009. The budget proposes to abolish FBT, which would mean lower cash outgo and lower administration hassles. Also, the budget proposes extension of STPI scheme (sun-set clause) for one more year, i.e. for FY2010-11.

This would mean one more year of relief on the taxation front for the IT companies. The budget proposes to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD.

Finally, the budget proposes to increase the MAT limit from 10% to 15% and extend the period allowed to carry forward the tax credit under MAT from 7 years to 10 years.

Though this would mean higher cash outgo due to taxes to be paid on higher tax rate, on an overall basis the impact on earnings would be neutral.

On the administrative side, the budget proposes set up of alternative dispute resolution mechanism to be created within the Income Tax department for the resolution of transfer pricing disputes empowering the Central Board of Direct Taxes (CBDT) to formulate 'safe harbour' rules to reduce the impact of judgmental errors in determining transfer price in international transactions.

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