PM sets up committee to review taxation of IT sector

New Delhi -  Prime Minister Manmohan Singh Monday set up a committee to review taxation of “development centres” and IT sector, with a view to bring more clarity in the  system that would help boost investment.

“The committee will engage in consultations with stakeholders and related government departments to finalise the Safe Harbour provisions announced in Budget 2010 sector-by-sector. It  will also suggest the approach to taxation of development centres,” according to a statement issued by the Prime Minister's Office.

The four-member committee, headed by former chairman of the Central Board of Direct Taxes N. Rangachary, has been asked to submit its report to the government by Aug 31, 2012.

The activities like product development, analytical work and software development carried out through captive entities in India by the multi-national companies are popularly called  “development centres”.

It is carried out in a wide range of fields, including IT software, IT hardware, pharmaceutical research and development (R&D), automobile R&D and other scientific R&D.

Some 750 multi-national companies have such centres at over 1,100 locations in India. The reason for this large concentration of development centres in India is the worldwide recognition of

India as a place for cost competitive, high quality knowledge related work.

The committee has been asked to engage in consultations with stakeholders and related government departments to finalise the approach to taxation of development centres and to

suggest any circulars that need to be issued.

The committee has also been mandated to examine issues related to taxation of the IT sector and suggest any clarifications that may be required.

The panel will engage in sector-wide consultations and finalise the Safe Harbour provisions announced in Budget 2010 sector-by-sector. The committee will also suggest any necessary

circulars that may need to be issued.

Safe Harbour provisions were announced in Finance Bill 2010, but have not been operationalised yet. The provisions have the advantage of being a good risk mitigation measure and

provide certainty to the taxpayer.