Welcoming the Income Tax Department’s move to rescind and modify circulars pertaining to taxation of development centres, industry experts said the move would provide the much needed clarity to foreign investors.

“In times where foreign investments into India are impacted because of uncertainty in the current tax environment, the clarificatory circular is a welcome move from the tax administration, and a clear signal to the world that India meant business,” Price Waterhouse & Co Partner Sanjay Tolia said.

The Income Tax Department last week withdrew the circular on adoption of profit-split method, which leads to higher taxes, as a preferred mode for computing tax liability, while modifying another one related to development centres.

Commenting on the department’s move, the National Association of Software and Services Companies (Nasscom) said, “We would like to thank the government for rescinding and modifying the circulars which play an instrumental role in developing software solutions. The government has considered the needs of the industry, working in due consultation on this issue.”

Nasscom and its members had been engaged in a dialogue with the government to provide clarity in taxation norms. The tax department received representation from the IT industry on the two circulars, following which the matter was reviewed.

Multinationals happy

These amendments are positive particularly for multinationals, which have a strong R&D base in India, the body said, adding that the government has also reiterated its intent to issue the safe harbour guidelines, thus, promising to offer certainty and predictability to businesses.

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