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March 2, 2001                                       Feedback  

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IT sector seeks clarification on Sinha's tax proposals

Bipin Chandran

The Indian IT industry has demanded clarification on Yashwant Sinha's proposal to amend Section 10A\10B of the Income Tax Act.

The amendment provides for IT companies operating in special zones, with "substantial public interest", to avail tax exemption even after a change in the shareholding pattern of the firm.

As per the present provisions of the section 10A/10 B, if more than 51 per cent shareholding of the company--- operating in 100 per cent export oriented units, export processing units, software technology parks --- changes in a year, then the company will cease to get income tax exemption from that year.

"There is confusion regarding this classification on substantial public interest. It is not very clear what it means by the substantial public interest," said Dewang Mehta, president Nasscom.

According to Nasscom, this tax exemption should be extended to all IT companies. "We want the tax exemption under Section 10A/ 10B of the Income Tax Act to be extended to all companies, whether public has limited, substantial or no interest in them," Mehta said.

He also said that the Nasscom would be meeting the Central Board of Direct Taxes (CBDT) officials and demand a clarification regarding the changes.

"While Nasscom welcomes the move to amend Section 10A/10 B of the Income Tax Act, it is imperative that this incentive is extended to unlisted companies as well," Mehta added.

According to Ajay Choudhry, chairman and CEO, HCL Infosystems, "This provision should be extended to all companies as it is mostly unlisted IT companies which get acquired or merged."

"Small unlisted companies need growth impetus from mergers and acquisition for higher growth. The government should have kept this provision flexible," Choudhry added. Meanwhile the IT industry has welcomed the government's clarification on providing tax exemption to IT-enabled service companies.

"This clarification to bring the IT-enabled services companies at par with the software industry is a welcome move," said Mehta.

According to Choudhry, this clarification would help remove procedural hassles.

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