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Clear The Uncertainty

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A look at what the IT sector demands as the industry moves into a low growth phase

S Sridharan, Managing Director, TAKE Solutions

"The coming 2012 budget should address these concerns for the IT industry. The challenges at this point are, uncertain external environment, slowdown in GDP growth and currency fluctuation.  The new budget should maintain the fiscal balance, provide incentive for growth and clear all uncertainty in the tax regime.  Last year we faced new taxes on SEZ by means of MAT. We hope there are no new surprises in the budget. Still the industry has to pay VAT and service tax for software products as the classification is ambiguous. Clearing these ambiguities and providing a stable tax regime would be of utmost importance."

P Venkatesh, Director and Co-founder of Maveric Systems

These are my suggestions to the finance minister

  • SEZ related: The concession required is to remove the applicability of MAT for such entities.

  • IT is significantly contributing to our exports. Some of the latest entrants require working funds from banks for undertaking their operations. The benefits of concessional interest and lower collateral to their financing should be extended to IT units as well.

  • The IT industry is moving into a low growth phase, perhaps for the first time in its lifecycle in India. It, therefore, requires all the support in order to come out of this phase in good shape. The following would help:

a. IT product development should be given special concessions under tax; a rebate at 150% of the expenditure, both capital and revenue, should be extended;
b. The rate of depreciation for computer equipment and software should be 60% of their cost; and
c. Benefits of Sec 72A of the income tax relating to carry forward and set off of business loss in the case of amalgamation or merger should be extended to IT as well.

  • The domestic IT spend is slated to grow at an impressive rate. A large part of the expenditure is being met by government and its owned enterprises. They should earmark, say, 15-20% of the spend to come from Small and Medium Enterprises (SME) who should be provided a 15% price advantage.

  • There is some confusion regarding packaged software – whether it is a good or a service. It is better to clarify the situation and accord it priority by lowering the tax rate on that.

  • In order to encourage IT product development and the consequent intellectual property rights (IPR) creation, Employee Stock Option Scheme (ESOP) of such companies should be exempt from tax.

  • There is going to severe currency exchange rate fluctuation in the next few years. In order to help the SMEs in the IT industry, a fixed exchange support mechanism for dealings in key currencies should be extended.

  • The surcharge and education cess were introduced as interim measure. They need to be removed.