| INFOTECH: Companies will have to pay increased dividend distribution tax (effective rate 17.25 per cent due to the 15 per cent surcharge)
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THE MEASURES
The Budget proposes to bring information technology companies under the ambit of the minimum alternate tax (MAT) and the increased dividend distribution tax (effective rate 17.25 per cent due to the 15 per cent surcharge). Another blow comes from the fringe benefit tax (FBT) on employee stock options (ESoPs).
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| To soften the blow, it has exempted technology business incubators from service tax. Incubatees, with annual business turnover less than Rs 50 lakh, will be exempt from service tax for the first three years.
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| It has given the pass-through status to venture capital (VC) funds only if they invest in biotechnology, hardware and software development, nanotechnology and seed research and development.
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| E-Governance allocation has been increased from Rs 395 crore in 2006-07 to Rs 719 crore in 2007-08. The Centre has increased its support to state governments by allocating Rs 500 crore in 2007-08. Besides, Rs 33 crore has been allocated for a new manpower development scheme for the software export industry.
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THE CONTEXT
The finance minister reasons that the effective rate of tax paid by all corporates, thanks to numerous tax concessions and exemptions, was only 19.2 per cent.
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| Hence, the proposal to extend MAT. But it comes at a time when the industry was expecting sops like extension of the Software Technology Parks of India scheme beyond 2009, besides a duty structure conducive to hardware manufacturing.
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THE IMPACT
Analysts say MAT will affect 100 per cent export-oriented units and those under the STPI scheme. These now pay 14 per cent (surcharge included) dividend distributed tax and fringe benefit tax (FBT). This will affect the earnings per share of IT companies immediately.
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| Bharat Varadachari, partner, Ernst and Young, said, “Rather than giving an extension to the various tax holidays by 2009, the minister has brought all companies under the tax bracket with MAT. ” The Budget also boosts innovation. |
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