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Tax sop brings cheer to ITES sector

By Our Special Correspondent

Bangalore June 29. Recent policy decisions in New Delhi have made professionals in IT and IT-enabled services (ITES) in Bangalore more upbeat. These sectors account for a major proportion of the City's younger workforce, coming under middle-to-upper middle income groups.

The Union Finance Ministry last week decided to exempt certain services, including call centres and medical transcription centres from the 8 per cent service tax proposed in the last budget.

The business of Business Process Outsourcing (BPO) has expanded in recent years with even some multi-nationals in the IT sector providing outsourcing for overseas clients such as international banks. There are several smaller players too who are into call centres, providing services to overseas corporates in a cost-effective manner.

On the minus side, there is some confusion over some IT-enabled services, which may not enjoy this tax exemption. The Union Finance Ministry has said that tax exemption for IT services will apply only if the output service provided is related to designing, developing, or maintaining computer data processing or system networking or any other services, primarily related to the operation of computer systems. For example, if the output service is interpretation of remote sensed data, it will not qualify for service tax exemption, even if IT is used. This situation may well lead to a case-by-case interpretation to clarify if a particular IT-enabled service is tax-exempt or not, according to taxation experts here.

Meanwhile, overall salary levels for those employed in the BPO/IT-enabled services sector have steadily gone up over the past 12 months, compared to the previous year when they remained more or less stagnant.

Salaries in this sector start at five figures. While entry-level salaries have increased by 15 per cent, the overall increase could be 20 to 25 per cent. According to some in the industry, such as the Bangalore-based 24/7 Customer, those switching jobs and going to another company can expect a 30 to 35 per cent increase. A recently published data from NASSCOM indicates that expenses on personnel amount to over 52 per cent of the budget of IT-enabled service companies. This situation may continue till there is a shake-up in the form of smaller players closing down or merging and more trained personnel emerging in proportion to the jobs available.

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