IT firms to benefit after government clarifies on taxes

By Harichandan Arakali

BANGALORE (Reuters) - India's $100 billion IT outsourcing sector, which earns the bulk of its revenue from exports of software services, won a long-sought and favourable clarification over the tax treatment of some of the money it earns overseas.

Profits from software developed overseas by Indian companies and from fees for sending staff abroad to client locations will get the same exemptions that the industry gets at home under Indian tax laws, the government said in a statement on Thursday.

"Overall, it's a positive move. It's a welcome measure that clears the air and avoids future litigation," S. Balasubramaniam, chief financial officer of Zensar Technologies , an Indian outsourcer, told Reuters.

In one instance involving such taxes, No.2 outsourcer Infosys Ltd is contesting tax claims of about 14 billion rupees, including interest, related to the fiscal years 2005-2008, the company said in a recent quarterly filing with the U.S. Securities Exchange Commission.

Infosys said it was "delighted" with the clarification.

"It removes one big uncertainty for the industry," the company said in a statement.

The National Association of Software and Services Companies, or NASSCOM, an industry lobby, said the government's clarification was a positive step.

"We urge that benefits denied in the past be reviewed in light of this move and there be swift closure of cases for the industry to benefit from this," NASSCOM said.

(Additional reporting by Manoj Kumar in New Delhi; Editing by Tony Munroe and David Holmes)