Tax benefits for IT Companies in India

Benefits:

1. Section 10AA Deduction:

New firms or units providing services in Special Economic Zones (SEZs) are eligible for income tax exemption under Section 10AA of the Income Tax Act. This area is usually found inside a country’s weaker economic areas and is covered by the various businesses.

            Eligibility:

• The company should not have been established by relocating previously used plants or machinery. However, purchase of second-hand machinery is allowed.
• Commencement of business must be on or after April 1, 2006
• SEZ enterprises are not entitled to claim this deduction if they have already received the deduction benefit under Section 10AA for ten years.

Exemption Limit:

• For the first five years, export-related profits are 100% tax-exempt.
• Next five years (years six through ten): export profits are 50% tax-exempt.
• The next five years, from year 11 to year 15:

50% of export earnings

OR,

Amount transferred to a special reserve account (SEZ Reinvestment Allowance Reserve Account), whichever is lower

2. Services Exports from India Scheme (SEIS):

By offering duty scrip credit for exports, the Service Exports from India Scheme (SEIS) seeks to encourage the export of services from India. As per the plan, Indian service providers would receive incentives under the SEIS plan for all services exported from India that meet the eligibility requirements.

These Duty Credit Scrips can be used by IT companies to cover customs charges on imports that are necessary for their business. This can drastically lower the price of importing necessary hardware, software, or other supplies.

A 3%, 5%, or 7% incentive on net foreign exchange gained in the form of duty credit scrips is available to exporters services. You can encash these SEIS scrips by selling them to any importer, or you can use them to pay import duty.

IT enterprises must submit an online application to the Directorate General of Foreign Trade (DGFT) following in the end of the financial year (due date depends on the notification) in order to be eligible for SEIS advantages.  Documents such as invoices and certifications of foreign exchange realization must be submitted as part of the application procedure.

Compliance Requirements:

1. GST Compliance: IT businesses should be registered under the Goods and Services Tax Act, 2017. And are required to file frequent returns, including GSTR-1, GSTR-3B, and the yearly GSTR-9 forms.
2. TDS (Tax Deducted at Source): Deduct TDS under sections 194C (contracts), 194J (professional fees), and 195 (payments to non-residents) and others appropriately. Submit TDS certificates and quarterly returns.
3. Corporate Law Compliance: Complying with the Companies Act of 2013 and submitting an annual return (Form MGT-7) and financial statements (Form AOC-4) on a yearly basis.
4. STPI (Software Technology Parks of India) Compliance:

• SOFTEX Forms: Quarterly reports that break down the foreign exchange profits earned by exporting software. As per Para 6D due date for filing Softex Form is 30 days from the date of the invoice
• Performance Information (PIRs): Annual reports on export performance, employment information, and operational operations.
• Maintaining Records: According to STPI requirements, keep records for Sales agreements and invoicing

Chhota CFO offers numerous tax benefits and incentives to support the growth of IT companies. From deductions under Section 10AA for SEZ units to exemptions for startups under Section 80-IAC, businesses can leverage these schemes to optimize costs. Additionally, GST refunds on exports and benefits under the Software Technology Parks of India (STPI) program provide financial relief. Explore these opportunities and maximize your company’s profitability while contributing to India’s tech-driven economy.

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