Union Budget: Good for IT, but gaps remain

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Published: March 1, 2015 12:17:40 AM

The Budget saw some glaring misses too. For instance, no steps have been taken to mobilise domestic investors. Angel Tax, not even remotely angelic, continues

Budget may be termed as ‘comprehensive’, though some gaps and concerns remain. Overall positive, from an IT industry standpoint, however, it is advisable to tread with a certain degree of caution, as the fine print needs further clarification.

The announcement of a Public Procurement Dispute Resolution Bill is a step in the right direction to counter the creeping negative perception in industry regarding participation in government projects. The announcement of this bill shows a serious intent on the government’s part to address these concerns. The statement that the PPP approach in infrastructure would be revisited and revitalised would also be applied to large IT projects.

The R10,000 crore for SMEs that was announced last year brought in much cheer and expectations kept mounting. Self-Employment Talent Utilisation (SETU), a R1,000-crore techno-financial and incubation scheme and a R150 crore Atal Innovation Mission (AIM), are all aimed at creating an innovation promotion platform to foster R&D. Yet the larger question still lingers — the deployment of the R10,000-crore fund that the industry has been eyeing for some time now.

The importance of pricing in competitive strategy cannot be over-emphasised. Towards this, a reduction of tax on royalty, and on fee for technical services, from a high 25% to a moderate 10%, is a welcome move. Ease of doing business, yet another thorn in the Indian business environment, this time, draws some respite. Service tax and excise duty registration can now be completed within two days through electronic filing. In addition, assessees will be allowed to issue digitally signed invoices, which is a significant move for start-ups.

Other smaller moves, yet laudable are: the time limit for availing CENVAT credit has been increased from six months to one year; A financial aid scheme for IT-based students, and setting up of an Animation and Gaming institute in Arunachal Pradesh are positives towards fostering the eco-system.

Issues pertaining to service tax refunds are onerous. It doesn’t help now that service tax rate has increased by 1.5%. The Budget saw some glaring misses too. For instance, no steps have been taken to mobilise domestic investors. Angel Tax, not even remotely angelic, continues. Employment generation incentive threshold reduced from 100 new jobs to 50 jobs, is restricted to the manufacturing sector only. In addition, R&D Credits and Investment allowance have not been extended to include IT.

Of course, these are initial hours but the industry will need further clarity on certain issues, as we go along. For instance, road map on the implementation of GST, definition of royalty which is not aligned to global practices and place of provision of service related to export of testing of services.

By R Chandrashekhar, President,  NASSCOM

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