STPI tax shield under scrutiny

The income tax department is closing in on software exporters claiming exemptions by registering with Software Technology Parks of India (STPI).

The Central Board of Direct Taxes (CBDT) has received representations from its field formations questioning the STPI's status and its powers to grant tax exemptions under Section 10A of the Income tax Act.

"Over 95 per cent of software exporters are now claiming deduction under Section 10A on the basis of their registration with a society by the name of STPI. The registering society, a profit-making entity, is not recognised either under the statute or any rules or notifications. The board, too, has not issued any clarification on this issue," Chief Commissioner of Income Tax, Delhi, Hardayal Singh, said in a report to the CBDT.

Though the exemptions claimed by software exporters have not been quantified, the amount can run into several crores of rupees. Revenue from software exports touched Rs 77,157 crore in 2004-05.

When contacted, STPI Director-General SN Zindal said the society came under the rules and notifications of the government and added that it would soon make a detailed presentation to the government.

Nasscom President Kiran Karnik said the matter was an inter-departmental issue and did not concern the software sector.

Stating that the STPI has arrogated to itself powers for granting income tax exemptions to units registered with it, the report has pointed out that the society does not get exemptions under Section 10(23C) and Sections 11 and 12 ever since assessment year 1998-99.

"The society has received money under several heads running into several hundreds of crores of rupees and has not paid any tax. Tax implications in the case of the STPI itself run in hundreds of crores of rupees," the report has said.