The National Association of Software and Service Companies (Nasscom) has submitted detailed recommendations for the upcoming Budget, including clarification on availability of income tax relief in projects for which staff Work-from-Home (WfH), reduction in compliance burden and certainty to taxpayers.
Nassocm said the industry had the potential to achieve twofold growth in annual revenue to reach $350 billion by FY26, and favourable consideration to these suggestions would provide the right impetus.
In its recommendation, Nasscom sought clarification as to whether WfH by employees of units in Special Economic Zones (SEZs) would not affect eligibility for tax holiday available under to Sec. 10AA of the Income Tax Act (I-T Act).
“Emerging from the COVID-19 pandemic, industry is implementing a hybrid working model where, unlike in the past, work will happen both onsite and remotely as a matter of routine. Earlier, this was considered a ‘temporary’ requirement but now it will just be a way of working. Industry is concerned that an aggressive interpretation of Sec. 10AA could lead to instances where officials may consider that work done remotely by workers of the SEZ Unit is ineligible for the tax holiday,” it said.
Nasscom has also recommended expansion of utilisation of SEZ Reserve to include expenses incurred on leasing of computers/laptops, using cloud infrastructure and buying software. Noting that S. 10AA(1)(ii) of the Act required a company to transfer part of profits to the SEZ reserve and use the same for acquiring plant and machinery to claim tax holiday, it added that unlike traditional brick and mortar manufacturing businesses, companies in IT – Business Process Management (BPM)/ IT enabled Services (ITeS) do not have significant investments in plant and machinery. “Instead, investment by IT-BPM / ITeS companies which fall under plant & machinery are laptop, desktop, servers and networking equipment, etc. which do not require heavy capital outlay… IT–BPM / ITeS companies are also required to invest in facilities and create delivery centres, i.e., investment in building, infrastructure, workstation, interiors, furniture, etc,” it added.
Further, in a bid to make India a hub for research and development (R&D), the industry body sought the introduction of the Super Innovation Technology Clusters (SITC) programme that provides matching grants to industry-led consortiums intending to undertake joint R&D projects leveraging cutting-edge technology. “The incentives under this programme should be made available only to industry consortiums, and not to individual companies engaged in R&D,” it said, adding that to be eligible for the incentive, every consortium must include three large companies (with revenue of ₹500 crore) of which at least one should be private, as well as an MSME, a start-up and one academic or esearch institution.
Nasscom also pitched for reducing the compliance burden and providing certainty to taxpayers, urging suitable amendments to allow depreciation on goodwill arising from transactions that have taken place before April 1, 2021.
Further, it has also recommended that tax collection at source (TCS) on sale of goods under Sec. 206 C(1H) of the I-T Act should be withdrawn as the objective of tracking high-value transactions will now be achieved by Sec. 194Q. Alternatively, it said, the threshold of ₹10 crore provided under these sections should be removed to ensure applicability of TDS provisions under S.194Q on transactions exceeding ₹50 lakh.
“This shall [help] avoid litigation on interpretational issues and provide ease of compliance for the e-commerce industry,” it said.
Nasscom has also suggested withdrawal of the mandatory pre-deposit of 20% of disputed tax demand to help unlock working capital and support stronger cash flow management for companies.
Other demands include customs duty exemption on devices and accessories imported for testing, issuing clear instructions to field officers to validate the genuineness of goods origin certificate consistent with trade agreements without affecting confidential business information and reviewing safe-harbour margins and scope to make the regime more attractive for companies to adopt.
