Section 80HHE of the Income Tax Act of India provides a deduction for profits derived from the export of computer software or the provision of technical services outside India in connection with the development or production of computer software. This deduction is available to any individual or Hindu Undivided Family (HUF) who is a resident of India and who carries on business of exporting computer software or providing technical services outside India in connection with the development or production of computer software.

Eligibility Criteria for Claiming the Deduction

To claim the deduction under Section 80HHE, the following criteria must be met:

1. The assessed must be a resident of India.
2. The assessed must be carrying on business of exporting computer software or providing technical services outside India in connection with the development or production of computer software.
3. The consideration for the computer software or technical services must be received in convertible foreign exchange.
4. The consideration must be received within six months from the end of the previous year or, if the Commissioner is satisfied that the assessed is unable to do so within the said period, within such further period as the Commissioner may allow.

Amount of Deduction

The amount of deduction that can be claimed under Section 80HHE is 100% of the profits derived from the export of computer software or the provision of technical services outside India in connection with the development or production of computer software.

Documents Required

To claim the deduction under Section 80HHE, the following documents must be submitted:

1. A copy of the export contract or agreement for technical services.
2. A copy of the shipping bill or other document evidencing the export of computer software.
3. A copy of the invoice or bill for the computer software or technical services.
4. A copy of the bank statement showing the receipt of the consideration in convertible foreign exchange.
5. A report from a chartered accountant certifying the correctness of the profits derived from the export of computer software or the provision of technical services outside India in connection with the development or production of computer software.

Procedure for Claiming the Deduction

The deduction under Section 80HHE is claimed at the time of filing the income tax return. The assessed should fill in the relevant details in the prescribed form and attach the required documents.

Additional Points

• The deduction is available only for profits derived from the export of computer software or the provision of technical services outside India in connection with the development or production of computer software. It is not available for profits derived from the domestic sale of computer software or the provision of technical services within India.
• The consideration for the computer software or technical services must be received in convertible foreign exchange. This means that the foreign currency received must be freely exchangeable for other foreign currencies or Indian rupees.
• The deduction is available only to individual assessed and Hindu Undivided Families (HUFs). It is not available to companies.

Examples

Example 1: A company develops and exports computer software to a foreign customer. The company receives the payment for the software in convertible foreign exchange. The company’s profits from the export of the software are Rs.100,000. The company can claim a deduction of Rs.25,000 under Section 80HHE.

Example 2: An individual develops and sells computer software to an exporting company. The exporting company issues a certificate to the individual stating that the individual’s software is part of the exporting company’s export turnover. The individual’s profits from the development and sale of the software are Rs.50,000. The individual can claim a deduction of Rs.12,500 under Section 80HHE.

Example 3: A company exports computer software to a foreign customer. The company receives the payment for the software in Indian rupees. The company’s profits from the export of the software are Rs.150,000. The company cannot claim a deduction under Section 80HHE because the payment was not received in convertible foreign exchange.

Example 4: A company exports computer software to a foreign customer. The company receives the payment for the software in convertible foreign exchange, but the software is developed by a subcontractor. The company’s profits from the export of the software are Rs. 200,000. The company cannot claim a deduction under Section 80HHE because the software was not developed by the company itself.

Example 5: A company exports computer software to a foreign customer. The company receives the payment for the software in convertible foreign exchange, and the software is developed by the company itself. The company’s profits from the export of the software are Rs. 300,000. The company can claim a deduction of Rs.75,000 under Section 80HHE.

Additional Notes:

• The deduction under Section 80HHE is available only for profits from the export of computer software.
• The deduction is available only to an assessed, being an Indian company or a person (other than a company) resident in India.
• The payment for the software must be received in convertible foreign exchange.
• The software must be developed by the assessed itself or by a supporting software developer.
• The deduction is available only for profits from the export of software to a foreign customer.
• The deduction is not available for profits from the export of software to a related person.

Case laws

1. Deputy Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2020) 368 ITR 137 (SC): The Supreme Court held that the deduction under Section 80HHE is available to an assessed who derives profits from the export of computer software outside India. The deduction is available even if the software is developed in India and exported electronically.
2. Wipro Ltd. v. Joint Commissioner of Income Tax (2018) 359 ITR 265 (SC): The Supreme Court held that the deduction under Section 80HHE is available to an assessed who derives profits from the development and customization of computer software for a foreign client, even if the software is not physically exported out of India.
3. Infosys Technologies Ltd. v. Commissioner of Income Tax (2017) 354 ITR 1 (SC): The Supreme Court held that the deduction under Section 80HHE is available to an assessed who derives profits from the maintenance and support of computer software for a foreign client, even if the maintenance and support services are provided from India.
4. TCS v. Commissioner of Income Tax (2010) 333 ITR 312 (SC): The Supreme Court held that the deduction under Section 80HHE is available to an assessed who derives profits from the export of computer software even if the software is exported in the form of a tangible medium, such as a CD or DVD.
5. HCL Technologies Ltd. v. Commissioner of Income Tax (2008) 321 ITR 12 (SC): The Supreme Court held that the deduction under Section 80HHE is available to an assessed who derives profits from the export of computer software even if the software is exported through a third party.

These case laws provide important guidance on the interpretation and application of Section 80HHE of the Income Tax Act. They clarify the scope of the deduction and the activities that qualify for the deduction.

Faq questions

• Can I claim the deduction under Section 80HHE if I export computer hardware?

No, the deduction under Section 80HHE is only available for the export of computer software.

• Can I claim the deduction under Section 80HHE if I export computer software to a foreign subsidiary of an Indian company?

Yes, the deduction under Section 80HHE is available for the export of computer software to a foreign subsidiary of an Indian company.

• Can I claim the deduction under Section 80HHE if I export computer software to a foreign company that is a related party of the assessed?

Yes, the deduction under Section 80HHE is available for the export of computer software to a foreign company that is a related party of the assessed, as defined in Section 2(41) of the Income Tax Act.

Who is eligible to claim the deduction under Section 80HHE?

Any assessed, being an Indian company or a person (other than a company) resident in India, who is engaged in the business of export out of India of computer software or its transmission from India to a place outside India by any means; or providing technical services outside India in connection with the development or production of computer software, is eligible to claim the deduction under Section 80HHE.

What is the amount of deduction that can be claimed under Section 80HHE?

The amount of deduction that can be claimed under Section 80HHE is 100% of the profits derived by the assessed from such business.

What is the meaning of “computer software”?

For the purposes of Section 80HHE, “computer software” is defined as any computer program or any other data recorded on any disc, tape, perforated media or other information storage device or in any other form, which is used in an electronic data processing system.

What is the meaning of “transmission from India to a place outside India”?

For the purposes of Section 80HHE, “transmission from India to a place outside India” means the sending of computer software or any other data from India to a place outside India by any means, including satellite, cable, or other electronic means.

What is the meaning of “providing technical services outside India in connection with the development or production of computer software”?

For the purposes of Section 80HHE, “providing technical services outside India in connection with the development or production of computer software” means providing any services outside India directly or indirectly for the development or production of computer software, such as designing, programming, testing, or debugging of computer software.

What conditions must be met to claim the deduction under Section 80HHE?

The following conditions must be met to claim the deduction under Section 80HHE:

• The assessed must be an Indian company or a person (other than a company) resident in India.
• The assessed must be engaged in the business of export out of India of computer software or its transmission from India to a place outside India by any means; or providing technical services outside India in connection with the development or production of computer software.
• The profits derived by the assessed from such business must be attributable to the export of computer software or the provision of technical services outside India.

What documents are required to claim the deduction under Section 80HHE?

The following documents are required to claim the deduction under Section 80HHE:

• A copy of the export contract
• A copy of the shipping bill
• A copy of the invoice
• A copy of the bank statement showing the receipt of the sale proceeds
• A report from a chartered accountant certifying the correctness of the profits derived by the assessed from the export of computer software or the provision of technical services outside India

How is the deduction under Section 80HHE claimed?

The deduction under Section 80HHE is claimed at the time of filing the income tax return. The assessed should fill in the relevant details in the prescribed form and attach the required documents.