STPI Clause Unlikely to Get an Extension

Sunset clause allows 100 per cent tax deduction on profits "THE ministry will focus now on developing India as a hub for IT hardware."

THE finance ministry is unlikely to grant any further extension to the tax benefits under the Software Technology Parks of India (STPI), popularly known as the sunset clause. “The finance ministry has told us point blank that they will not be extending the sunset clause any further,” said a senior official in the IT ministry who is familiar with the developments.

The sunset clause allows 100 per cent tax deduction on profits under Section 10A and Section 10B of the Income-Tax Act and was initially available only until March 31, 2009. It was further extended for a period of two years and is now set to expire in March 31, 2011. Companies registered with the STPI will have to pay tax at an estimated rate of 33.99 per cent in the absence of these deductions. The tax holiday scheme helped the sector to grow to a 2.6 million strong workforce and trade body Nasscom expects IT exports to grow at an annual 13-15 per cent to touch $56-57 billion by FY11.

However, some companies feel that such a step should remain for the benefit of all, especially for the smaller companies. “India is a recognised country now for the IT/ ITES sector globally, but additional benefits such as STPIs should continue as it tries to club and keep all the companies together at a place. Therefore, if the government
continues with it, it shows the seriousness of the government towrads this industry, which is required by the new companies and entrepreneurs who want to enter this industry,” director, GlobalHunt, Sunil Goel said.

But, analysts support the government’s move, even it decides to discontinue with the STPI. “The STPI has been very helpful to the IT/ ITES industry and companies have invested more because of the tax benefits for
long time. But, how long would the governement continue with such schemes? Government should either increase the tax now whether it is for captives in India or overseas after the companies have made money," managing director, TPI (consulting firm), Sid Pai said.

The official also said that the ministry's focus, which has hitherto been on developing India's strengths in software, will now be on developing India as a hub for IT hardware. “Support International Patent 1 (SIP 1) has not yielded the desired results, so we have formed a SIP 2 working group that will work towards the creation of silicon wafer manufacturing units in India,” he said.

According to him, India requires at least two such units, each requiring an investment of around Rs 15,000 crore. Of these, one unit will be based on established technology while the other will be a state-of-the art facility, he said. “China’s share of global hardware production is 33 per cent whereas India’s share languishes at 1-2 per cent, so there’s plenty of scope for improvement,” he added. 

Financial Chronicle, New Delhi, 23-11-2010