Software industry expects budget revisions

The association reiterated a demand that the government do away with a $100 million ceiling on the value of overseas acquisitions by software firms, and that it allow firms to use up to 30 per cent of their stock for acquisitions without government approval, Mehta said. "Case-by-case scrutiny is not something we are comfortable with," Mehta said.

India’s leading software companies, which enjoy a market capitalisation of around $36 billion in the United States, could make strategic acquisitions if government policies were more conducive, industry officials say.

The budget for the fiscal year to March 2001, due to take effect from April 1, had said export-oriented units (EOUs) and firms operating from export processing zones (EPZs) and software technology parks (STPs) would not have the benefit of a 10-year tax holiday if they were set up or registered after April 1. This would discourage new units from being set up after the current month, Mehta said.

The industry had suggested instead that the tax holiday be available for any firm until 2009/10, irrespective of the time it started work in the export zones, Mehta added. "We expect acceptance of this by the Finance Ministry," said Mehta.

Similarly, Nasscom had urged the government to help software firms give employees stock option plans (ESOPs), Mehta said. "It is believed that employees may gift their stock after exercising their option (as there is no gift tax in India)," Mehta said.

"In order to overcome this problem, we suggest in the case of ESOP, the government may put a condition that either ESOP stock cannot be gifted before the first sale or the employee will have to pay tax at the time of gifting," he added.

The industry association has urged that a plan to tax software exports, now exempt from income tax, be put off until 2003 but has not yet received any signal the government will retrace its step, Mehta said.