The year 2016 was filled with challenges and uncertainty, yet the IT sector continues its growth in terms of revenue. In the organised sector in India, it is the biggest employer in private sector and its revenue for the year (according to Strategic Review 2016 by NASSCOM) was $143 billion. The IT sector is generally expected to contribute around 10 percent to India’s GDP and almost half of total services export. The popularity of the sector is expected to lead to some good announcements in the Budget. It has been speculated in the budget that some initiatives in taxation could lure in more investors from India and abroad, especially concentrating on Skill India, Startup India, Make in India, Digital India and other key projects. These speculations were triggered after the demonetisation move by the Indian government which gave rise to digital transformation because to the massive increase in the use of electronic transfer. Now, after the unpredictable foreign policies of the US government, it is all the more important to strengthen the domestic base in order to compete with the rest of the world.
The IT industry demands suggest that the focus on ‘ease of doing business’ should continue and it is imperative that the thrust will be on improving the technological infrastructure. Additionally, it was expected that the government will further digital literacy, upgrade connectivity and more access to it by increasing bigger budgetary allocations. Startups are highly important for India, now more than ever, which has been increasing the focus on ‘Startup India’ initiative. Also, there were demands on IT services being included in the ‘eligible undertaking’ so that losses are carried forward whenever there is a merger. Apart from that, it was expected that the government should reduce the rate of tax from 30 percent as well as increase the rate of depreciation on computers and software from 40 percent. From research to skills to a deduction in taxes, the IT sector wants the government to spend on a lot of things.
In 2016, there was only a little push for a homegrown manufacture of certain specific IT products vis-a-vis ‘Make in India’ agenda of the Government and providing incentives for Start-ups, but the proposals did not meet many expectations of the IT sector.
Meanwhile, in the Budget 2016, IT sector saw multiple initiatives like: E-market platform for the agriculture sector in collaboration with the states, linking farmers to e-marketing. Schemes for promoting digital literacy mission launched. Tax holiday for all SEZ units, including IT SEZ units, will have a sunset clause – only SEZ units commencing operations on or before April 1, 2020, can avail the tax holiday. In the case of Start-ups, Corporate tax holiday was proposed on 100 percent of profits of and gains derived by an ‘eligible Start-up’. Deduction available for any 3 consecutive assessment years, out of 5 years beginning from the year in which eligible start-up is incorporated. For encouraging seed capital from promoters of ‘Start-ups’, long-term capital gains tax exemption was proposed for sale of residential property by individuals / HUFs (collectively referred to as ‘investor’) if the capital gains are invested in the subscription of shares of an eligible ‘Start-up’ company.
The main issue in front of Indian IT companies right now is the fact that the H1-B visa bill has been tabled in the US House of Representative, which has caused a lot of pressure. The Indian IT industry, which employs more than 3.7 million people is now faced with the serious external threat of protectionism which could inhibit its growth even as it waits to realise the promise of digital infrastructure within the country, which could act as a catalyst for the future.