Budget 2013 impact: Clarity on tax issues related to R&D centres in IT soon

Budget 2013 impact: Clarity on tax issues related to R&D centres in IT soon New Delhi:The government will soon issue a circular to provide clarity on taxation matters with regard to research and development activities in the IT sector.

"The Rangachary Committee was appointed to look into tax matters relating to development centres and IT sector and Safe Harbour rules for a number of sectors.

"We have issued a circular covering IT sector exports and will shortly issue a circular covering development centres," Finance Minister P Chidambaram said in his Budget speech today.

He added that rules on Safe Harbour will be issued after examining the reports of the Committee, the last of which is expected by March 31, 2013.

Last year, the government had set up a panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, to address issues like approach to taxation of development centres, tax treatment of 'onsite services' of domestic software firms and those related to finalising Safe Harbour provisions announced in Budget 2010.

Safe Harbour principles are international disclosure practices to check litigations in transfer pricing - an accounting mechanism undertaken by MNCs to reduce tax liabilities.

In January this year, the Finance Ministry had clarified that domestic and overseas software developers would continue to get tax benefits for onsite development of software, deployment of manpower abroad and transfer of SEZ from one unit to another, among others.