Sinha chants IT mantra: Tax benefits for being Y2K compliant

In a revolutionary step, to help Indian corporates

gear for the Y2K problem, Sinha has allowed all expenditure incurred

by the corporate sector in making their systems Y2K-compliant to

be allowed as revenue expenditure in the next financial year.

This will help corporate India to get necessary

tax benefits for being Y2K compliant.

To boost software product development, two things

have been done. These are weighted deduction under Income Tax and

also relaxed venture capital norms. Computer software is being included

under Section 35 2AB of the Income Tax Act.

This will give a boost to R&D software product development

in India, as software products and packages initiatives will get

125 percent weighted income tax deduction till 2005.

Venture Capital is an important source of fund for

the Indian software industry to proliferate. The Union Budget 1999-2000

has provided a boost to Venture Capital environment in the country,

by relaxing the requirements for time-bound investment and minimum

lock-in-period of funds.

More importantly, it is proposed to insert a sunset

clause in the existing section 10(23F) of Income Tax Act, which

will provide exemption in respect of any income by way of dividends

or long term capital gains of a venture capital fund.

The budget has also recognized importance of ESOP

in the sunrise sector. Here, Sinha seems to have gone by the recommendations

of the JR Varma Committee.

He has announced no tax at the time of offer; but

ESOP will be taxed as a perquisite, when the employee exercises

the offer into an option and transfer the stock in his name.

Later, if he chooses to sell the stock, the capital

gain tax is applicable. ESOP is an important instrument for software

industry to retain its valuable manpower.