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The nation's information technology-driven services industry is hoping that some announcement would be made in the forthcoming budget to extend  tax breaks available for it under the Software Technology Parks of India (STPI) scheme.

To drive home its importance, the industry showed in a study unveiled on Tuesday that for every job it creates in software or allied services like call centre operations, it spins off four jobs in supportive activities like transport, catering and security, which generate jobs for semi-skilled and even unskilled workers.

Firms registered with STPs are exempt for incentives until 2009, when a "sunset" clause will kick in to end the benefits linked to exports. But the 1,100-member-strong National Association of Software and Service Companies (Nasscom) is trying hard to extend the tax breaks, which on current reckoning can be available only for companies that move into emerging special economic zones (SEZs).

Every rupee spent by the sector on domestically-sourced goods and services, translates into a total output of about two rupees in the economy, the study conducted with Nasscom by researcher CRISIL said.

“Withdrawal of the fiscal benefits involves a trade-off in terms of direct and indirect benefits to the economy. While the sector provides direct employment to 1.3 million people, it also creates employment for 5.2 million people (indirectly),” Nasscom President Kiran Karnik told a news conference.

The industry’s concerns stem from the fact that combined with wage inflation driven by pay packets to lure high-skilled workers, the withdrawal of these sops could erode net margins from the existing 19-20 to 15-17 per cent by 2009-10.

The sector is already faced with wage inflation that is expected to erode the operating margins from an average of 26-27 per cent to 23-25 per cent by 2009-10.

With an average salary inflation of 17-18 per cent, net margins are, in any case, headed down from 19-20 per cent to 16-18 per cent during the period.

The STP policy has a sunset clause under which registered information technology firms get exemption from income-tax under section 10A and total customs duty exemption on capital goods imports.

The units also get 100 per cent excise duty exemption on procurements made within India and a tax waiver on domestic sales of up to half the foreign exchange earned by a unit.

"Consumption spending by IT professionals alone has created 2.49 million jobs while the companies created 2.1 million jobs through other operational expenses incurred. Capital expenditure has led to the creation of another 0.63 million jobs in the sector so far,” said CRISIL Chief Economist and Executive Director Subir Gokarn.

Email Prerna K Mishra: pmishra@hindustantimes.com