India to trap outsourcers in tax net

A new tax being debated in the Indian parliament could raise costs to US firms outsourcing work to the subcontinent

Filing deadline shortened

The legislation will abbreviate the deadline for corporate tax filing from October 31 to September 30. As a result, more companies will be captured in the penalty net.

It's a bit like a speed trap, I suppose.

Increase in excise tax

This portion of the changes in the tax code will impact the software community directly. Packaged software will be subject to an increase in the excise tax from 8 per cent to 12 per cent.

While companies such as SAP and Oracle might be exempt from the increase because their software is technically not "packaged" software, companies such as Microsoft will be directly affected.

Broadening the definition of a service

The 12.3 per cent service tax will be levied on a wider array of services, including maintenance and consultancy services related to software. In other words, services provided for IT -- that is, software for use in the course of the furtherance of business and commerce -- is now considered a taxable service.

This will be another direct increase in the cost of doing business in India.

Also included in the services tax net will be Internet-oriented services and telecommunications services provided through the Internet. This includes services provided in relation to Internet backbone services, carrier services, Internet traffic, and access services.

Add to this a turnover rate now being pegged at 105 per cent, plus the weak dollar, and we can see that outsourcing in India is going to cost US firms a great deal more going forward.

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