The government has done away with tax deductions linked to accumulated losses, moving towards an investment-linked tax incentive scheme.
In the budget for 2011-12, the government said it is withdrawing the so-called 10-A and 10-B deductions due to rampant misuse by companies.
Many companies artificially lower their profits or declare losses to get the benefit of low taxes. Companies have been staggering depreciation over many years in an attempt to keep their bottomlines in the red and save tax, officials said.
“It leads to distortions. There have been umpteen recommendations of different committees [against the provision,]” revenue secretary to the government of India, Sunil Mitra said.
He, however, explained that three exceptions have been provided for — power companies, special economic zone developers and special economic zone companies.
The first two can continue to avail of such benefits if they start operations next year while the window will be open for the last category till 2014.
“The services sector was lauded for its double digit growth rates, but the fastest growing services industry, IT-BPO faced double negatives – imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B,” the National Association of Software and Services Companies said in reaction to the proposals.
“The tax exemptions under section 10A/10B should be extended by one year, so that companies can prepare for the new regime,” it added.