Zero Import Duty on Computer Software License

Taxation Software

Department of Revenue, Ministry of Finance, Customs Notification No.46/98 dated 16 July 1998. Exim Policy 1998, incorporated a new entry for "License to Use" of computer software as "all documents of title for use of software issued by software company" under the ITC HS Classification No. 4907 00.20.

1. "Licenses" of computer software can now import separately (if desired with or without the software on media) without any import license from DGFT.

2. Books, magazines and periodicals on CD-ROM are exempt from Import Duty. CD-ROMs containing books of educational nature, journals, periodicals or newspapers are exempt from import duty or SAD.

3. Donation of computers and peripherals from EOU/EPZ/STP/EHTP at zero duty. Units in EOU/EPZ/STP/EHTP can donate (at zero import duty) computers and peripherals after two years of import and use to recognized non-commercial educational institutions, registered charitable hospitals, public libraries, public funded research and development establishments, organizations of Government of India, or Government of State or Union Territory.

4. Duty is exempted on import of second hand computers and peripherals received by schools as donation from a donor outside India.

Income Tax

5. Profits derived from export of software (including some of IT Enabled services) are exempt from Income Tax under Section 80HHE of the Income Tax Act. Accordingly, computer software and software developed through on-site, off-shore and physical exports are exempted subject to various provisions contained in Section 80 HHE of the Income Tax Act. The definition of "Computer Software" in Section 80 HHE of the Income Tax Act, was further amended during 1998 enlarging its scope. According to this section of Income Tax Act, "Computer Software" means any computer program recorded on any disc, tape, perforated media or other information storage device and includes any such program or any customized electronic data which is transmitted from India to a place outside India by any means." I.T. enabled services like data entry, revenue accounting, back office operations, medical transcription etc. may now claim 100 percent tax exemption under Section 80 HHE of the Income Tax Act.

6. Benefits under Section 80 HHE of Income Tax Act is also available to sub-contractors.

7. A ten year income tax holiday is available under Section 10A/10B of Income Tax Act. Accordingly, units which have begun or begins to manufacture computer software commencing on or after April 1,1981 in any tree trade zone, or commencing on or after April 1, 1994 in any electronic hardware technology park or software technology park or commencing on or after April 2001 in any special economic zone may avail of Income Tax holiday. No deduction under this section will be available from the assessment year 2010-11 onwards. Existing units which commenced operations prior to April 1,2000 und were entitled to exemption under this section up to the assessment year 2000-01, are entitled to exemption under the new provisions for the unexpired period. For the purposes of Section 10A and 10B, 'Computer software’ means

• Any computer program recorded on any disc, tape, perforated media or other information storage device; or
• Any customized electronic data or any product or service of similar nature, as may be notified by the Board.

which is transmitted or exported from India to any place outside India by any means. The definition of 'computer software’ has been broadened and includes IT Enabled services like data processing, call center operation etc.

8. Depreciation on computers at 60 per cent. Central Board of Direct Taxes, Department of Revenue and Ministry of Finance Notification dated 4 September 1998. Government of India has raised the maximum depreciation for computers to 60 percent. Therefore, as per the written down value method, 84 percent of cost of the computers can be depreciated in first 2 years.

Author Bio:

Tapan Choure is tax analysts in information technology industry that deals in Income Tax Software and E- TDS Software.