India Moves to Tax the Foreign Income of Its Outsourcers—End of the Offshore 'Vacation'?

8 March 2011:

Key Changes to the Indian Tax Laws for Outsource Providers
The Indian Minimum Alternative Tax (or "MAT," which is similar in nature the U.S. construct of Alternative Minimum Tax or AMT) has been made applicable to businesses operating in India's SEZs or "Special Economic Zones." In addition, the rate of the MAT has been increased from 18% to 18.5%. These changes will be applicable beginning in April 2012.

Even more interesting than what was included in the new budget, however, may be what was not included. Specifically, the Software Technology Parks of India (STPI) scheme, which allows income on exports from registered companies to be excluded from taxation, was already scheduled to expire in March 2011.2 Many in the IT and outsourcing industry had believed that this expiration would be extended for at least an additional year (perhaps to coincide with the elimination of the MAT tax holiday in the SEZs). However, no such extension has been granted, meaning that the STPI scheme will expire at the end of this month.