Tax Saving And Goodwill...

if the software is reflected in your asset, in previous years, then it would be capital gain, otherwise it would be "profit from business and profession" 

for user database there is no such capital gain.

Thanks, is there any way to save tax in this scnario (FEMA, Software xporter waivers, small software devloper waiver etc. . I am ok with paid consulation if needed.

Tax benefits on export of software, STP and EHTP

There are various tax provisions under the Income Tax Act 1961 on the income from export of software.

We will discuss some of the taxation provisions as also will discuss advantages and steps of setting up a Software Technology Park popularly known as STP. 

TAX PROVISIONS

Income Tax Act U/S 10A: provides for special provision in respect of newly established undertakings in Free Trade Zones ("FTZs") etc. 
Under this section, profits and gains derived from the export of articles or things or computer software by an undertaking set up in any of the Free Trade Zone, Software Technology Park areas (STP) andelectronic hardware technology park ("EHTP") areas are fully exempt for a period till 31st March 2010.

Income Tax Act U/S 10B: special provision in respect of newly established hundred percent export oriented undertakings (EOU).
Under this section, profits and gains derived from the export of articles or things or computer software by a hundred percent export oriented undertakings (EOU) are fully exempt for a period till 31st March 2010.

Section 35 of the Income Tax Act provides for tax deduction of any expenditure incurred on scientific research. 
Any expenditure laid out on scientific research related to the business of a taxpayer is allowed as a deduction while computing taxable income. 
Sub-section (2AB) of section 35 of the Income Tax Act provides for a deduction of 125% of any expenditure incurred by a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecom equipments, chemicals or any other notified article, on scientific research (not towards cost of land or building) on in-house research and development facility as approved by the prescribed authority. 

Section 80 HHE of the INCOME Tax Act: deals with the deduction in respect of profits from export of computer software, etc.
Under this section if a company or a person is engaged in the business of --
(i) export out of India of computer software or its transmission from India to a place outside India by any means; 
(ii) providing technical services outside India in connection with the development or production of computer software;
Then the profits derived from his business would be deductible from its taxable income .The extent of the deduction shall be an amount equal to 80% for assessment year beginning on 1st April 2001, 60% for 2002, 40% for 2003, 20% for 2004 and then no deduction will be allowed there after.

This deduction will be available provided the consideration in respect of the export of computer software is received in, or brought into India in convertible foreign exchange within a period of six months from the end of that financial year. This benefit is available only to Indian companies or Indian residents. This benefit is also available to supporting software developer selling computer software to exporting company.


U/S 10 A (iv) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of
Commerce;
(v) "Software Technology Park" means any park set up in accordance with The Software Technology Park Scheme notified by the Government
of India in the Ministry of Commerce.


Software Technology Park (STP) Scheme
It's features and benefits:

1. STP scheme is a 100% export oriented Scheme for undertaking software development for export using data communication link or in the form of physical exports including export of professional services. 

2. The central Government, state government, public or private sector undertakings or any combination may set up a software technology park (STP) thereof. A STP may be a stand-alone unit or one of the units located in any STP Complex.

3. The STP unit will be a duty free custom bonded area under section 65 of the customs Act 1962. The normal procedure applicable for custom bonding will be followed. All the imports to STP units are duty free. 

4. STP/STP Units may be set up anywhere in India.
5. An organisation setting up a STP complex for development and export of Software through STP scheme may import, free of duty, the requisite infrastructure equipments with no export obligation.
6. STP unit has tax benefits under Income Tax Act as earlier mentioned. 
7. STP units are entitled to sell the computer software in Domestic Tariff Area (DTA) up to 25% of the software exported in value terms. 

8. The capital goods purchased from the Domestic Tariff Area (DTA) up to 50% of the software exported in values terms.

9. STP may import free of duty all types of goods for creating a central facility for use by software development units in STP. Software units shall also be permitted to import capital goods on loan from clients for specified period for executing specified projects.

10. Foreign equity up to 100% is permissible in the case of STP units. 

11. Software units will be allowed to use the computer system for training purpose (including commercial training) subject to the condition that no computer terminal shall be installed outside the bonded premises for the purpose.


12. The export obligation of a STP unit in net foreign terms shall be as follows:
Minimum export performance for 5 years.

i ) US$ 0.25 Million

(ii) 5 times the CIF value of imported capital goods whichever is higher.

NFET will be calculated annually and cumulatively for a period of 5 years from the commencement of commercial production, accordingly to the following formula:

NFET=A-B/A x 100

A = FOB value of exports by the STP Unit 
B = Sum total of CIF value of all imported inputs + CIF value of all imported capital goods + the value of all payments made in foreign exchange by way of commission , royalty ,fees, dividends , interest on external commercial borrowings during the first five years period or any other charges ,"inputs" means raw materials, intermediates, components, consumables, parts and packing materials. 

For annual calculation of NFET ,1/5th value of imported capital goods shall be included under B."

Step by step procedure to set up a Unit under STP Scheme for 100% export of Computer Software 

STEP-1
Send STPI, the Gist of Application.

STEP-2
projected figures for five years to be finalised after discussion with the Company

STEP-3
Application Form to be submitted in triplicate

STEP-4
Following documents to be attached with Application Form 
a)Project report / brochures of the Company
b)Board of Directors' resolution copy / Power of attorney
c) Firm contracts/Agreement/Purchase Order/ MOU with foreign client.
d) Memorandum of Association/Articles of Association of the company.
e) Any other documents related to the company or project for further clarifications (if required by STPI).
f) If foreign equity or NRI equity is involved then approval from FIPB or RBI needs to be submitted.
g)Payment towards application processing fees and service charges depending upon your export turnover

STEP- 5
Application for Import Export Code to be submitted alongwith the Bank Certificate.

STEP-6
Application for Green card to be submitted

STEP- 7
STPI evaluates the Application and Approval is given , provided all the above details are furnished correctly

STEP-8 
Approval letters is issued

STEP-9
Agreement Paper is signed between Director, STPI and the Authorised signatory of the Company.

STEP-10
IEC & Green card are issued on the same day of signing the agreement.

STEP-11
Company to submit the List of Plant & Machinery for STPI approval in order to apply to Customs Dept. for bonding of the Premises.

STEP-12
Company to apply to Customs Dept. alongwith the following documents for bonding of the premises.

STEP-13
Get the contracts registered with STPI

STEP-14
Contract to be approved by Director

STEP-15
Company to raise Invoice submit to STPI alongwith the Softex Forms for certification

source : https://www.indiaitlaw.com/softexptax.htm