Budget 2015: Mixed bag for Indian IT industry

The removal of special additional duty on IT products is a big positive for domestic manufacturers of personal computers and tablets

Finance Minister Arun Jaitley during his Budget 2015 speech acknowledged the concerns of the $150 billion Indian IT industry. Even though he did not announce any big bang measures for the industry, experts said that the fine print of the budget has a few positive measures for the industry.

To start with, the FM announced the removal of special additional duty on IT products which is a big positive for domestic manufacturers of tablets. The industry however was disappointed as the personal computers (PCs) have been kept out of its ambit.

“The removal of customs duty on components and concessional structure of 2 per cent without CENVAT credit are positive steps to encourage tablet manufacturing in India. However it disappoints as no initiatives have been taken to increase PC manufacturing and promote exports,” Amar Babu, president of industry body Manufacturers’ Association for Information Technology (MAIT), said. “In this budget, we might have missed an opportunity to drive 'Make in India' in computers.”

The other positive impact will be reduction in withholding tax. This means that the tax on royalty will come down from 25 per cent to 10 per cent. The FM also mentioned that the government will bring in a public procurement dispute resolution bill to address some of the disputes in the domestic market.

Industry body Nasscom, though commended on the positive announcements said that some of the concerns of the industry were not addressed. “We had made recommendation on removal of tax on Angel funding, that has not been addressed. The industry has been facing dual taxation on products as some get charges both services and sales tax, but that too has found no place in the budget. Though corporate tax has been reduced nothing was mentioned on MAT,” said B V R Mohan Reddy, vice chairman, Nasscom.

Reddy further added, “We need to look at the fine print. We will wait and watch.”

“Reduction in withholding tax rates for payments royalties and technical services fees will help the IT/ITeS sector use the latest global technologies to improve their offerings. The thrust to Make in India initiatives will also benefit the sector directly and indirectly. The introduction of place of effective management rules will however need to be evaluated by India outbound companies,” Ravi Mahajan, Tax Partner, EY India.

The FM’s speech also mentioned that concerns of IT industries for a more liberal system of raising global capital, incubation facilities in centres of excellence, funding for seed capital and growth, and ease of doing business etc. would be addressed for creating hundreds of billion dollars in value. Though the Minister did not give any further details.

“In terms of the IT industry specifically there is a nod for the needs of the IT industry in terms of making a statement that the needs of the IT industry will be addressed in terms of ease of doing business, capital access etc. However, without reviewing the details of exactly how this is to be done, we will need to adopt a wait and watch approach to see how effective it will be. Reducing the tax on R&D and innovation investments to 10 per cent is a very positive move, both from the point of view of facilitating technology transfer as well as incentivising companies to invest more in driving innovation. Along the same lines, the nod to the ‘start-up ecosystem’ in the country is a major positive. This is the first time such language has made its way into the budget and a good reflection of the fact that job growth has to be broad based by facilitating the SME segment and even the start-up culture in the country,” said Partha Iyengar, country manager (research), Gartner (India)

The Budget proposal to defer GAAR by two years and increase in domestic transfer pricing threshold to Rs 20 crore from Rs 5 crore and gradual reduction in headline corporate tax rate over 4 years from 30 to 25 percent, with phase-out of industry specific exemptions, is also positive for the industry.