Statutory obligations

Software Technology Park scheme

We have set up Software Technology Parks (STPs), which are 100% export-oriented units, for the development of software at Bangalore, Bhubaneswar, Chandigarh, Chennai, Hyderabad, Mangalore, Mysore, Pune and Thiruvananthapuram (all in India). Certain capital items purchased for these centers are eligible for 100% customs and excise duty exemption, subject to fulfillment of stipulated export obligations, which was five times the value of duty-free imports of capital goods, or duty-free purchase of goods subject to excise, over a period of five years on a yearly basis. Beginning April 2001, the export obligation on duty-free import of capital goods, or duty-free purchase of goods subject to excise is thrice the value of such goods over a period of five years. Beginning April 2002, the export obligation on duty-free import of capital goods or duty-free purchase of goods subject to excise is thrice the value of such goods over a period of three years. Beginning April 2003, the units are required to achieve positive Net Foreign Exchange earnings (NFE) only. The period to achieve the net positive NFE is five years from the date of commencement of production / renewal of the license for the unit.

The non-fulfillment of export obligations or positive net foreign exchange earnings (NFE) may result in penalties as stipulated by the government, which may have an impact on future profitability.

We have fulfilled our export obligations and achieved a positive net foreign exchange earnings for all our operations under the Software Technology Park scheme.

Special Economic Zone scheme

Our first Special Economic Zone (SEZ) unit, became operational at Mahindra World City (a private multi-product Special Economic Zone), Chennai, in the financial year 2005-06 and our second SEZ Unit in this SEZ become operational during the financial year 2010-11, with a total approved area of about 129.00 acres. We established our SEZ unit at Chandigarh (Rajiv Gandhi Chandigarh Technology Park), with an approved area of about 30.21 acres, in the financial year 2006-07. During the financial year 2007-08, SEZ units were established in Pune and Mangalore, with an approved area of about 77.81 acres and 305.58 acres respectively. During the financial year 2009-10 our SEZ unit at Thiruvananthapuram, with an approved area of about 50 acres, commenced production. During the financial year 2010-11 we have commenced our operations at SEZ units in Mysore and Hyderabad, with an approved area of about 54.64 acres and 447.33 acres respectively. The SEZ Units came into existence under the new Special Economic Zones Act, 2005 (‘the SEZ Act’).

As per the SEZ Act, the unit will be eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further five years, subject to the unit meeting defined conditions. Other fiscal benefits including indirect tax waivers are being extended for setting up, operating and maintaining the unit.

The units operating under the SEZ scheme are required to achieve positive net foreign exchange earnings (NFE) over a period of five years from the date of commencement. We have achieved positive foreign exchange earnings for all our operations under the SEZ Scheme. However, in case of SEZ’s operationalized during the year, the positive foreign exchange earnings will be met in the future.

Taxation

We benefit from certain significant tax incentives provided to the software industry under Indian tax laws. These currently include :

(i) deduction of export profit from the operation of software development facilities designated as Software Technology Parks (the STP tax deduction) and

(ii) deduction of export profits from units in Special Economic Zones.

The period for which STP tax deduction is available to each STP was restricted to ten consecutive years, starting from the financial year when the unit started producing computer software or March 31, 2011, whichever is earlier.

The details regarding the commencement of operations at our STP locations and the year up to which the deduction under the STP scheme was availed are as follows :

 

Software Technology Park	Year of commencement(1)	Tax exemption
		Claimed from(1)	Available up to(1)
Infosys
Electronics City, Bangalore	1995	1997	2004
Mangalore	1996	1999	2005
Pune	1997	1999	2006
Bhubaneswar	1997	1999	2006
Chennai	1997	1999	2006
Phase I, Electronics City, Bangalore	1999	1999	2008
Phase II, Electronics City, Bangalore	2000	2000	2009
Hinjawadi, Pune	2000	2000	2009
Mysore	2000	2000	2009
Hyderabad	2000	2000	2009
Chandigarh	2000	2000	2009
Sholinganallur, Chennai	2001	2001	2010
Konark, Bhubaneswar	2001	2001	2010
Mangala, Mangalore	2001	2001	2010
Thiruvananthapuram	2004	2004	2011
Infosys BPO
Phase I, Electronics City, Bangalore	2002	2002	2011
Pune	2003	2003	2011
Phase II, Electronics City, Bangalore	2005	2005	2011
Jaipur	2006	2006	2011
Gurgaon	2006	2006	2011
Chennai	2004	2004	2011

⁽¹⁾ Financial year

The details regarding the commencement of operations at our SEZ locations and the year up to which the deduction under the SEZ scheme is available are as follows :

 

Special Economic Zone	Year of commencement(1)	Tax exemption
		Claimed from(1)	Available up to(1)
Infosys
Mahindra City – unit 1, Chennai	2006	2006	2020
Chandigarh	2007	2007	2021
Mangalore	2008	2008	2022
Pune	2008	2008	2022
Thiruvananthapuram	2010	2010	2024
Mysore	2011	2011	2025
Hyderabad	2011	2011	2025
Mahindra City – unit 2, Chennai	2011	2011	2025
Infosys BPO
Pune	2007	2007	2021
Jaipur	2008	2008	2022
Gurgaon	2008	2008	2022

⁽¹⁾ Financial year

The benefits of these tax incentive programs have historically resulted in an effective tax rate, well below the statutory rates for us. There is no assurance that the Government of India will continue to provide these incentives.

The government may reduce or eliminate the tax exemptions provided to Indian exporters at any time in the future. This may result in our export profits being fully taxed, and may adversely affect the post-tax profits in the future.

On a full tax-paid basis, without any duty concessions on equipment, hardware and software, our post-tax profits for the relevant years are estimated as follows :

in crore, except per share data

	2011	2010	2009
Profit before tax	9,313	7,900	6,894
Less : Additional depreciation on duty waived for certain assets	49	70	90
Reduction in other income	53	49	67
Adjusted profit before tax	9,211	7,781	6,737
Less : Income tax on the above on full tax basis	3,162	2,776	2,400
Restated profit after tax	6,049	5,005	4,337
Restated basic EPS ()	105.89	87.74	76.15

Note :

The figures above are based on IFRS financial statements. However, it may be noted that this is only an academic exercise. We have provided for income tax in full in the respective years and there is no carried-forward liability on this account.