ET Bureau NEW DELHI: The Central Board of Direct Taxes has withdrawn a controversial guideline and tweaked another to provide a breather to the about $100-billion offshoring industry that has been facing the heat from tax sleuths.
The apex body for direct taxes, or CBDT, has withdrawn the guideline of profit-split method for transfer-pricing transactions, which was seen at the core of industry's tax woes.
The changes are based on recommendations of Rangachary committee set up by Prime Minister Manmohan Singh to look at the issues and in line with finance minister P Chidambaram's promise of a non-adversarial tax regime as well as stability and clarity in tax laws.
The move, aimed at making India an attractive destination for outsourcing of software development and research and development, comes after much industry hue and cry.
Nasscom, the flagship IT industry body, had given several representations to the government on the issue.
Tax experts say the development would encourage investments in the sector and help create jobs in the country.
"Rescinding these circulars to a large extent removes uncertainty and apprehension in the minds of top decision makers in foreign companies looking to create a win-win environment by outsourcing even more contract R&D and other forms of IT-enabled services to India," Hitesh Gajaria, partner at KPMG, said. "This also would exponentially increase meaningful jobs for our burgeoning graduates," he said.
The clarifications are relevant in the wake of a number of offshoring players including Microsoft getting slapped with tax notices.
The new circular drops the condition that a development centre in India would not use any other economically significant assets including intangibles in research or product development. This was perceived as a threat by taxpayers.
The apex body for direct taxes, or CBDT, has withdrawn the guideline of profit-split method for transfer-pricing transactions, which was seen at the core of industry's tax woes.
It has also substantially changed criterion for treatment of a development centre in India as a contract R&D service provider with "insignificant risk", addressing a major demand of the industry.
The changes are based on recommendations of Rangachary committee set up by Prime Minister Manmohan Singh to look at the issues and in line with finance minister P Chidambaram's promise of a non-adversarial tax regime as well as stability and clarity in tax laws.
The move, aimed at making India an attractive destination for outsourcing of software development and research and development, comes after much industry hue and cry.
Nasscom, the flagship IT industry body, had given several representations to the government on the issue.
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Tax experts say the development would encourage investments in the sector and help create jobs in the country.
"Rescinding these circulars to a large extent removes uncertainty and apprehension in the minds of top decision makers in foreign companies looking to create a win-win environment by outsourcing even more contract R&D and other forms of IT-enabled services to India," Hitesh Gajaria, partner at KPMG, said. "This also would exponentially increase meaningful jobs for our burgeoning graduates," he said.
The clarifications are relevant in the wake of a number of offshoring players including Microsoft getting slapped with tax notices.
The new circular drops the condition that a development centre in India would not use any other economically significant assets including intangibles in research or product development. This was perceived as a threat by taxpayers.
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