India to relax tax rules for software sector

The Indian government is fighting to keep tax rules favourable for the information technology sector, hoping this will attract software development companies to the country.

Prime Minister Manmohan Singh has put together a panel to ensure the country gets a big bite of the $70-billion industry and to repair the flagging investment from overseas company.
 According to sources within the government, he has recommended favourable tax treatment and a stable tax regime for software sector.

 The India Economic Times reports that the Rangachary panel had many consultations with software experts before producing its recommendation reports. Infosys was just one company that claimed that the tax problem was a “big distraction” for the industry

The Rangachari panel will now work to complete the basis for “safe harbour” rules for each sector by December this year. Tax authorities will then have to accept transfer prices declared by these companies.  

Another big complaint for Indian software companies relates to tax treatment of profits earned from  work that they do at their clients’ sites. Tax authorities have raised demands on these companies, saying that onsite activities cannot be treated as exports and hence do not qualify for a tax exemption.

The government has also said it may look into this at a later date. Indian Standard Time.