The Indian IT industry has sought extension of tax benefits under STPI and simplification of the tax structure to encourage investments in the sector, among others as part of its budget wish-list.

The USD 76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.

"We have requested for the STPI scheme to be extended till the DTC comes in with the right incentives because we need one incentive or the other to encourage people to come in and invest, especially in small and medium companies," Nasscom President Som Mittal said.

STPI, which offers tax exemption to export oriented units on profits under Section 10A and Section 10B of the Income Tax Act, was extended by one year till March 2011 in the Budget last year.

"These things start impacting in the long run. When they said they won't extend STPI was at a time when DTC was supposed to come in 2011. For many larger companies, STPI benefits have got over and they have moved into SEZs. But not all companies can get into SEZs," Mittal said.

The government had introduced the SEZ policy, under which the first five years offer a 100 per cent tax exemption and 50 per cent for the subsequent five years.

If the scheme is not extended, tax rates for Indian IT companies could go up to 25-30 per cent from about 20 per cent currently.

Other demands include reduction of MAT (minimum alternate tax), introducing new incentive schemes based on employment and location, simplification of service tax refunds and clearer interpretation of tax laws.

Agrees AMD MD and Corporate VP (Sales and Marketing) Ravi Swaminathan. "Instead of tweaking one per cent here and there every year, the government needs to adopt a long-term view and adopt a zero-tax regime. This will bring in PC penetration and promote manufacturing." he said.

MAIT, a body representing hardware manufacturers said, the tax structure needs to focus on reducing the dependence on imports to feed domestic manufacturing.

"Less than 20 per cent components required for local equipment manufacturing are available from domestic sources.

The tax regime needs to ensure that companies look at local equipment rather than importing them at cheaper rates from the neighbouring countries," Manufacturers' Association for Information Technology (MAIT) Executive Director Ashwini Aggarwal said.

He added that the four per cent SAD (special additional duty) should be abolished on all IT products and components.