Link BPO promotion scheme with direct tax benefit: ASSOCHAM plea to Govt.

“Government should allow assessees to claim depreciation on assets funded by subsidy under the IBPS,” highlighted an ASSOCHAM pre-budget recommendation submitted to the Centre.

One reason why the Government did not receive expected response for IBPS which was launched under the Digital India programme, observed the chamber, as the overall benefit under the IBPS scheme will be reduced by 33 per cent as assessees cannot claim depreciation on assets funded by the Government subsidy.

The IBPS offers subsidy of up to 50 per cent of capital expenditure or Rs one lakh per seat, whichever is lower, for setting up BPO units in small towns and villages and to create employment there.

As Government has offered Capital Support: up to 50 per cent of one time capital expenditure incurred, this expenditure will be reduced from the cost of capital assets which will, in turn, reduce depreciation amount as per ICDS VII. “This will increase the direct tax burden on such assessees.”

ASSOCHAM has also suggested for setting up a Venture Capital pool initiated and coordinated by a bank/SPV (special purpose vehicle)/PPP (public private partnership) mode to boost availability of capital funds to the electronics sector.

“A venture capital pool be created and allied tax incentive provided, funds of such pool shall be used by genuine private players through a stringent mechanism,” it observed.

It said that while contributors may be offered tax incentives on the dividend, manufactures may be provided with tax exemptions.

The chamber has recommended that weighted deduction of 150-200 per cent of actual cost for finance, energy and logistics cost be allowed on specified components.

“The costs pertaining to finance, energy and logistics/transportation constitute major portion of the consumer electronics sector, further, these costs are auditable and duly included in the financial statements of a company,” said ASSOCHAM.

The chamber recommended that in line with global principles for taxation of software and judicial pronouncements of Hon’ble Supreme Court in the case of customs and service tax, it should be clarified that distribution of copyrighted articles being software forming integral part of the hardware would not fall within the ambit of ‘royalty.’

It highlighted that there is currently dispute with respect to taxability of royalty in case of software (being copyrighted article) that forms part of hardware.