[Reader-list] Union Budget 2009-10: IT gets a new lifeline- 137

[Taha Mehmood]

http://economictimes.indiatimes.com/News/Economy/Policy/Union-Budget-2009-10-IT-gets-a-new-lifeline/articleshow/4746890.cms

Union Budget 2009-10: IT gets a new lifeline
7 Jul 2009, 0640 hrs IST, Shelley Singh & Jessica Mehroin Irani, ET Bureau

Pranab Mukherjee’s budget has thrown in a lifeline for India’s
knowledge and technology industry, which is struggling to cope with
slowing global
demand and shrinking profit margins, through measures designed to
boost domestic demand, ease tax burden and reduce paperwork.

“The IT industry has been hit hard by the global slowdown and with
this budget the government is putting its weight behind us,” said
Pramod Bhasin, chairman of software industry association Nasscom,
which had slashed growth targets thrice in the last 12 months.

To cheer up the $60-billion industry, the finance minister extended
tax sops for IT exporters by one year, removed multiple taxation on
packaged software, announced an independent mechanism to deal with
taxation of captive units of multinational companies and relieved
employers from paying fringe benefit tax – a list that almost
completes the demands made by the industry.

A slew of e-governance projects announced in the budget such as smart cards
for poor families, unique identity card for all citizens and
computerisation of employment exchanges that will lead to greater
domestic IT spending only adds to the boon.

The Central Board of Direct Tax (CBDT) is told to come up with an
industry-specific safe-harbour mechanism to decide on how captive
software and back-office units of multinational companies that account
for 40% of the industry revenue are taxed in India.

The decision to extend tax deduction on export profits under Sections
10A and 10B of the IT Act will help companies weather the global storm
and stay ahead of competition from other IT destinations.

Some players, however, felt the government should have extended the
sops for longer than one year.

“I’m disappointed that it has not been extended by three years. There
will be significant savings as a result of the extension for us in
2010-11 but for 2009-10, the impact may actually be negative because
we have to write off the deferred tax assets that we have made
provision for,” said Alok Misra, CFO of back-office outsourcing firm
WNS.

An anomaly in Section 10AA that affected the tax benefits of companies
in Special Economic Zones (SEZs) has also been corrected. So long, SEZ
units of companies having operations outside the zones were not
getting the 100% tax holiday on profits as was promised at the time of
introduction of the SEZ regime. “The FM has removed this anomaly by
providing that, going forward, the total turnover of the ‘undertaking’
shall be considered instead of total turnover of the ‘assessee’,” said
PricewaterhouseCooopers executive director Himanshu Parekh.

The decision to remove excise duty and countervailing duty (CVD) on
packaged software may help software vendors rebound from a 25-30% fall
in sales in the last 12 months and check piracy, while the new norms
on FBT will ensure companies are no longer burdened with this extra
paperwork.

Then there are the big-ticket infrastructure and e-governance projects
that will boost the domestic IT market. “The government sector is an
important revenue source for the industry when the west is drying up,”
said Gartner principal analyst Diptarup Chakraborti.

The FM has proposed to nationalise the biometric smart card system for
BPL families as well the unique identity cards for all countrymen. The
government will spend Rs 120 crore this year on the Unique ID project,
which will be implemented within 12-18 months.

Increasing the outlay for institutions of higher learning such as IITs
and National Institutes of Technology (NITs) to Rs 2,000 crore will
help increase availability of skilled talent and boost innovation and
research & development.

While the budget has addressed issues of small and big IT companies,
multinationals and employees alike, it is now up to the industry to
take the most out of it.