Budget leaves IT Companies on MAT

Shares of IT and BPO companies sank on Wednesday after Finance Minister P. Chidambaram announced that the Minimum Alternate Tax (MAT) will be extended to these companies.

"I propose to extend MAT to income in respect of which deduction is claimed under sections 10A and 10B of the Income Tax Act," Chidambaram said in his budget speech in the Lok Sabha.
The Finance Minister said that he introduced MAT in 1996-97 for companies with book profits, and its purpose was to bring about horizontal equity in taxation. " MAT should therefore apply, as far as possible, to all corporate incomes," he said.

Also hurting the software companies' shares was the proposal to bring Employees' Stock Option Plan (ESOP) under the Fringe Benefit Tax (FBT). " The value of the fringe benefit will be determined, in accordance with a prescribed method, on the date of exercise of the option," the Finance Minister said.

The BSE IT index was down 5.85% to 4869.99. Among the major losers in the IT space were: HCL Tech (9.7%), Satyam (8.4%), Wipro (7.3%), Mphasis (7%), TCS (6%) and Infosys (5%).

"We believe that extension of MAT to companies that had earlier been promised 10A and 10B exemptions is likely to have an adverse impact on certain players," said Ashank Desai, Non-Executive Chairman, Mastek.

"In addition to that, the inclusion of ESOPs under FBT will add to the challenges being faced by employers in knowledge-intensive industries in attracting and retaining world-class talent," he added.