Bye Bye Tax Holiday!

- By DV Manohar, Director and Vasudha Acharya, Senior Manager- Deloitte Haskins & Sells

While the IT/ITES industry in India is trying to navigate through the tough economical conditions and the huge transfer pricing adjustments, it may have to prepare itself for new issues being raised by the Income Tax authorities.

The Indian tax authorities have come up with two major adjustments relating to export of computer software during the recently concluded assessment for financial year ending March 2008 which could significantly impact the IT/ITES industry in India. One of them is the denial of tax holiday benefit for the onsite profits earned by them. The other being the contention of tax authorities that the software companies are engaged in body shopping activities or Deputation of Technical Manpower (DTM) services, which are not eligible for tax holiday benefits.

Software Services Model

The software business model is an integrated model