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Electronics & Information Technology (IT) in India | IT Software, Services and BPO | Laws, Regulations, Policies and Patents

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 In recent times, Information Technology (IT) has made possible information access at astronomical speeds. India is now connected to the major global economies in many different ways. Through economic liberalization of India in the 1990s, India opened itself to foreign trade and connected its nascent software industry to its clients in America and Western Europe. Over the past few years, the Indian Information Technology- Information Technology-Enabled Services (IT-ITES) industry has grown at a remarkable pace.

 After the economic reforms of 1991-92, liberalization of external trade, elimination of duties on imports of information technology products, relaxation of controls on both inward and outward investments and foreign exchange and the fiscal measures taken by the Government of India and the individual State Governments specifically for IT and ITES have been major contributory factors for the sector to flourish in India and for the country to be able to acquire a dominant position in offshore services in the world. The major fiscal incentives provided by the Government of India have been for the Export Oriented Units (EOU), Software Technology Parks (STP), and Special Economic Zones (SEZ).

Software Technology Parks (STPs): For the promotion of Software exports from the country, the Software Technology Parks of India was set up 1991 as an Autonomous Society under the Department of Electronics and Information Technology. The services rendered by STPI for the Software exporting community have been statutory services, data communications servers, incubation facilities, training and value added services. Various benefits under STP Scheme include: Income Tax benefits under Section 10 A & 10 B of the IT Act upto 31st March 2011, Customs Duty Exemption in full on imports, Central Excise Duty Exemption in full on indigenous procurement, Central Sales Tax Reimbursement on indigenous purchase against from C, All relevant equipment / goods including second hand equipment can be imported (except prohibited items), Equipment can also be imported on loan basis/lease, 100% FDI is permitted through automatic route, Sales in the DTA up to 50% of the FOB value of exports permissible, Use of computer imported for training permissible subject to certain conditions, Depreciation on computers at accelerated rates up to 100% over 5 years is permissible, Computers can be donated after two years of use to recognized non-commercial Educational Institutions/Hospitals without payment of duty, Export proceeds will be realized within 12 months, Units will be allowed to retain 100% of its export earnings in the EEFC account. Click here to visit STPI website –

Special Economic Zones (SEZ) Scheme: In 2005, the Ministry of Commerce, Government of India has enacted the Special Economic Zone (SEZ) Act, with an objective of providing an internationally competitive and hassle free environment for exports. A SEZ is defined as a “specifically demarked duty-free enclave and shall deemed to be foreign territory (out of Customs jurisdiction) for the purpose of trade operations and duties and tariffs”. The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006. It provides drastic simplification of procedures and a single window clearance policy on matters relating to central and state governments. The scheme is ideal for bigger Industries and has a significant impact on future Exports and employment. The SEZ Scheme offers similar benefits to SEZ units as compared to those under STPI in respect of indirect taxes, with some minor differences in operational details. There is a however a significant difference, in respect of income tax holiday. In SEZ Scheme the exemption from income tax is tapered down over 15 years from the date of commencement of manufacture. There is 100% exemption of export profits from income tax for the first five years, 50% for the next five years and 50% for the five years subject to transfer of profits to special reserves.

The SEZ policy aims at creating competitive, convenient and integrated Zones offering World class infrastructure, utilities and services for globally oriented businesses. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A few salient features of SEZ scheme are as under: Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing and trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption. 100% Income Tax exemption on export profits available to SEZ units for 5 years, 50% for next 5 years and 50% of ploughed back profits for 5 years thereafter. This scheme, which is ideal for bigger Industries, has a significant impact on future Exports & employment. STPI Directors are acting as Development Commissioners for IT/ITeS SEZs. Click here to visit the website –

Business Methods & Software Patents in India: In accordance with the provisions of Section 3(k) of the Indian Patents Act 1970, mathematical and business methods, computer programs per se and algorithms are not patentable. As per general practice, the Indian Patent Office may categorize a particular method as a business method if it relates to a monetary transaction or simple marketing or sale purchase method. As per present status of Indian Patents Act with regards to software, the interpretation of “computer programme per se” is a debatable issue and therefore, can been viewed in multiple ways. The main purpose of such provision is that the Indian Patent Office will not consider mere computer programs as patentable, but that does not, in any manner, means that software related inventions, i.e. inventions embodying software or computer programs cannot be patented.

The Indian Patent Office released a Draft Manual of Patent Practice and Procedure in 2011 providing guidelines on the types of claim allowed in respect of software-related inventions. As per the guidelines, if a patent claim in a patent application is not directed at a computer program per se it could be patentable, if all other patentability conditions are met.

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Contributors: Prity Khastgir andRahul Dev

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