Sinha chants IT mantra: Tax benefits for being Y2K compliant

By : |April 9, 1999 0

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.

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