What Is IT Services / Software Firm ITR Filing
IT Services / Software Firm ITR filing means computing PGBP income across IT-specific complexities - LUT enabled zero-rated export of services under Rule 96A CGST Rules, Section 10AA SEZ deduction for existing pre-sunset units (Form 56F audit), FIRC reconciliation with Schedule FSI / FA foreign income disclosure, transfer pricing Section 92E + Form 3CEB for international related party transactions, ESOP perquisite taxation Section 17(2)(vi) with Section 80-IAC startup deferral, Section 32 computer/software depreciation at 40 percent WDV, and Section 80JJAA additional employee cost deduction - all reported in entity-appropriate ITR form (ITR-3 / ITR-5 / ITR-6) with Section 44AB tax audit coordination where applicable.
India IT services sector spans pure-domestic firms (banking software, government IT, captive IT departments), export-only firms (offshore development centres for US/UK/EU/AU clients), hybrid firms (mix of domestic and export), SEZ-located IT firms (commenced operations on or before 31 March 2021 within Section 10AA 15-year window), and captive subsidiaries of foreign parents (international related party transactions). Each profile has distinct compliance perimeters.
Pure-domestic firms face standard ITR + GST 18 percent + tax audit Section 44AB at Rs 1 crore. Export firms face additionally LUT for zero-rated supply (or with-IGST refund cycle), FIRC tracking, Schedule FSI foreign income reporting (even though exempt under Section 10AA where applicable, disclosure required). SEZ firms face Section 10AA 100/50/50 deduction across 15 years with mandatory Form 56F. Captive subsidiaries face transfer pricing Section 92E + Form 3CEB by 31 October. ESOP-issuing firms face employee perquisite TDS at exercise. This service handles all profiles with a CA who understands global delivery models, dollar-denominated invoicing, and the working capital cycle of export receivables.
Key Terms for ITR for IT Service Firms:
Section 10AA - SEZ Deduction: Income Tax Act 1961 Section 10AA. 100 percent of profits from export of articles or services for first 5 consecutive AYs; 50 percent for next 5 AYs (years 6-10); 50 percent of profit credited to SEZ Reinvestment Reserve for next 5 AYs (years 11-15). Total 15-year tax holiday. Mandatory Form 56F audit by CA. Cannot opt new tax regime Section 115BAC.
Section 10AA Sunset: Finance Act 2016 inserted proviso. NO deduction for SEZ units commencing manufacture or production of articles or services on or after 1 April 2021. Existing units that commenced operations on or before 31 March 2021 continue to claim deduction for full 15-year period.
LUT - Letter of Undertaking: Filed in Form GST RFD-11 on GST portal under Rule 96A of CGST Rules 2017. Permits zero-rated supply (export of services / goods / supply to SEZ) WITHOUT payment of IGST. Annual filing each FY. Validity 1 FY; renewal mandatory each year.
Form 56F - SEZ Audit Report: Audit report by Chartered Accountant for SEZ units claiming Section 10AA. Filed alongside ITR. Verifies eligibility conditions, separate books, computation of export turnover and total turnover, formula application. CA UDIN required. Without Form 56F, deduction disallowed.
Schedule FSI - Foreign Source Income: ITR schedule disclosing income earned outside India taxable in India. Country-wise breakdown. Tax payable / paid in source country. DTAA application. Mandatory for assessees with foreign income regardless of taxability.
Schedule FA - Foreign Assets: ITR schedule disclosing foreign assets held by assessee. Mandatory for Resident and Ordinarily Resident (ROR). Bank accounts, financial interests, immovable property, beneficial interest, ESOPs abroad. Section 43 of Black Money Act 2015 prescribes Rs 10 lakh penalty per defaulting year for non-disclosure or inaccurate particulars. Threshold relief w.e.f. 1 October 2024 (Budget 2024): no penalty where aggregate value of foreign assets other than immovable property does not exceed Rs 20 lakh; foreign bank accounts with aggregate balance up to Rs 5 lakh during PY also outside the penalty net. Per Special Bench ITAT (2025), the word "may" in Section 43 is directory not mandatory, allowing discretionary non-imposition for technical or venial breaches.
FIRC - Foreign Inward Remittance Certificate: Document issued by AD bank to recipient of foreign remittance. Confirms USD / EUR / GBP receipt date, amount, originating bank, purpose code (P0802 for software services, P0803 for IT enabled services). Reconciles to GSTR-1 export invoice and Schedule FSI.
Section 92E - Transfer Pricing: Income Tax Act Section 92E. Report by Accountant in Form 3CEB for international transactions and Specified Domestic Transactions. Filed by 31 October 2026 (one month before ITR due date for TP cases). 22 clauses covering nature, value, arms length pricing.
Section 17(2)(vi) - ESOP Perquisite: At exercise of ESOP - difference between Fair Market Value of share at exercise date AND exercise price (price paid by employee) added to salary income. TDS by employer Section 192. Two events: exercise (perquisite) and sale (capital gains).
Section 80-IAC - Startup ESOP Deferral: Finance Act 2020 inserted Section 156 deferral mechanism for ESOPs of DPIIT-recognized startups eligible under Section 80-IAC. ESOP perquisite tax DEFERRED to earlier of (a) date of sale of shares; (b) 5 years from end of AY of exercise; (c) date of cessation of employment.
Section 32 - Depreciation: Income Tax Rules 1962 Schedule II. Computers and computer software 40 percent WDV. General plant and machinery 15 percent WDV. Buildings 10 percent (factory) / 5 percent (other). Section 32(1)(iia) additional 20 percent on new manufacturing machinery NOT available to IT services.
Equalisation Levy: Originally 6 percent on online advertisement payments to non-resident service providers (introduced Finance Act 2016) and 2 percent on e-commerce supply (introduced Finance Act 2020). The 2 percent EL was ABOLISHED w.e.f. 1 August 2024 by Finance Act 2024. The 6 percent EL on online advertisement was subsequently ABOLISHED w.e.f. 1 April 2025 by Finance Act 2025. For FY 2025-26 (AY 2026-27) onwards, no fresh Equalisation Levy applies. Last Form 1 statement filed for FY 2024-25 (covering 6 percent payments up to 31 March 2025) was due 30 June 2025. Section 195 TDS on payments to non-residents continues to apply as before.