IT industry welcomes tax sops for SEZ units

Bangalore, July 3 (IANS) The Indian IT industry Wednesday welcomed the exemption from service tax and refund for units operating in Special Economic Zones (SEZ) as the modification will enable doing business at ease.

"The new notification exempts about 80 percent of services used by SEZ units from service tax and modifies its refund formula as the earlier formula was skewed," industry body National Association of Software and Services Companies (Nasscom) president Som Mittal said in a statement here.

In a notification earlier in the day, the Central Board of Direct Taxes (CBDT) notified the new rules and modified the refund formula for IT firms operating in SEZs.

Among the services used by the units are leased line, telecom, manpower supply, software licensing, renting and maintenance.

"The notification also allows consolidated filing by multiple units with a common service tax registration and makes compliance easier," Mittal pointed out.

Noting that the new rules would ensure a transparent, fair and timely exemption and refund process for the software firms operating in SEZs, Mittal said the government's gesture would help instil confidence and promote growth of the export-led industry.

"Clarification on availing Cenvat credit, an excise tax levied on goods or services at point of source, will enable firms with domestic operations to leverage it instead of applying for refund," Mittal observed.

Lauding the CBDT for withdrawing March 26 circular levying tax on research and development (R&D) centres of multinationals in the country, Mittal said the decision would facilitate more investments into the sector from global players.

"Withdrawal of circular number 2 on imposing tax on R&D centres and amendment to circular number 3 of March 26 with new guidelines for identifying contract R&D service provider are positive measures for the industry, especially multinationals, which have a strong base in India," Mittal added.

Nasscom also hoped the CBDT would soon issue guidelines on the safe harbour provision as recommended by the Rangachary Committee on taxation of development centres in the IT sector.

The panel was set up by the prime minister last year on a representation by Nasscom and the recommendations were made in September.

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