The Hindu Business Line : Poster boys take a hit

The software companies, which have consistently enjoyed an exalted tax-free status, appear to have finally run out of luck. The markets that had been gearing up for an extension of the tax exemption beyond 2009-10 under Section 10A/10B were jolted by the introduction of the Minimum Alternate Tax of 11.33 per cent on adjusted book profits. Outlining this measure, the Budget states, "Every corporate taxpayer participating in the economy must contribute to the exchequer."

Tax provision

A quick calculation of the effective tax rate of large and mid-cap software companies (Table) shows that among large cap companies, HCL Technologies, with the lowest effective tax rate, may have to consider a larger tax provision relative to its peers. Infosys Technologies may also have to bear some additional outgo, while this proposal may be neutral for TCS, Wipro and Satyam. Among mid-cap software companies, MphasiS, Aztec Software, 3i Infotech, Subex Azure and Nucleus Software (the last two are product companies) may have to consider a higher tax provision.

To rub salt to the wound, the fair market value of employee stock options offered by software companies will also be taken into account for computation of fringe benefit tax. The restricted stock options issued by companies at face value or highly discounted price will also come within the purview of this provision. Companies such as Satyam Computers, Wipro or iGate have issued RSUs to their employees.

More Stories on : Taxation | Budget | Software

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