The Indian information technology (IT) sector is hopeful that the new budget will extend

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tax benefits under the Software Technology Parks of India (STPI) Act by a year at least. Under the STPI regime, IT units enjoy tax benefits under sections 10A and 10B of income tax rules, whereby the profits from software exports are kept out of the tax net.

The government had announced a 10-year tax holiday for the units located in software technology parks in April 2000, under a policy aimed at encouraging growth in the sector. Last year, the then finance minister P Chidambaram had extended the scheme by a year till March 2010.

For the past three months Nasscom has been fighting hard to get this tax benefit extended and its president Som Mittal has been pressurising the finance ministry in this regard. As a result, telecom and IT minister A Raja met prime minister Manmohan Singh to pitch for the extension of tax sops enjoyed by the IT firms for another three years.

According to Som Mittal, while the removal of STPI benefits is of little consequence to large IT companies, small companies would be severely affected. “I hope for the sake of the smaller firms, the scheme is extended,” he says.

To keep the benefits, small and medium companies could move to special economic zones (SEZs), but again, as Mittal says, it would difficult for the SME IT companies to migrate to SEZs because of the higher expenses involved.

Infosys Technologies CFO, V Balakrishnan, says any move to extend the scheme would benefit the small and medium-sized companies which are finding it difficult to move into the SEZ space due to lack of availability of space, as well as high rental costs.

There is also a view that the STPI regime should be extended for more than a year. Subash Menon, chairman of the Nasscom Product Forum and founder of software product firm, Subex, told FC, “I would like to see the scheme extended for another three years. In business, uncertainty is a big negative factor and extending the scheme for just a year can do just that. It’s a new government and hopefully they will find it fit it run the scheme for a longer duration.”

MindTree CFO Rostow Ravanan told Financial Chronicle that it would be good for the industry if the scheme could be extended for the full term of the government.