Take a tax break for BPO income: Government tells MNC's

This piece of news is sure to cheer the MNC's up. Multinationals having Business Process Outsourcing (BPO) subsidiaries in India have been exempted from paying tax, Finance ministry announced today.

This move could bring an even bigger flood of outsourcing business to India. Because after tax exemption, the multinationals can save more money, because already they are saving a great deal after outsourcing to a low-cost destination like India. The finance ministry announced that foreign firms, whose call centers in India only take orders for buying and selling goods and services, would not have to pay tax for such operations. This piece of news may come as a New Year gift for the multinationals and will surely come pouring into India.

This move has come in to play because task force on non-resident taxation appointed by The Central Board of Direct Taxes has come to the conclusion that charging these call centers is not fair. All they are providing is service that is incidental and the bulk of activity such as manufacturing and supplying goods and services is done abroad. So the profits from such BPO operations is difficult to determine and will be too insignificant.

But the ministry did clarify that only the 'call centers providing core services will come under the tax bracket'. Which means that operations that have substantial revenue generation for the parent company will be under the tax net. Services like the call center services that provide software services over the telephone, or is engaged in annual maintenance for offshore customers and also travel related services will all come under this category.