Union Budget 2012-13: IT firms deserve better consistency and clarity by tax authorities

By retroactively amending the explanation of the term royalty in favour of revenue and against software firms, the government has once again shown that it has few qualms about moving the goalposts. Step by step, it seems to be making the tax regime more onerous for India’s IT industry.

There is no doubt that software companies have grown rapidly because of the favourable policy and tax environment created by successive governments. It is also no one’s case that software firms need special treatment now that many of them have attained high levels of maturity.

But they definitely deserve consistency and clarity in the way they are treated by tax authorities, particularly in taxing times such as these when their growth is expected to slow because of adverse economic conditions in the US and Europe.

Just one example of the authorities’ intransigence is the way they deal with refunds of service tax paid by software firms.

Most times, the demands are flimsy and the appeals drag on. The decision to allow advance pricing, something that anyway would have happened when the DTC came into effect, is welcome. This is a small mercy for software firms.