Balanced Budget

size="3">While
the budget overall seems to be pragmatic and well balanced, it seems
to be a mixed bag for the IT Industry. Increased focus on
e-governance and consequent opportunities will be welcomed by the
Indian IT/ ITeS industry. Reduction in the current surcharge rate for
domestic companies (from 7.5 percent to 5 percent), coupled with an
intention to phase it out altogether, is also a step in the right
direction. Industry IT players with global footprint/ subsidiaries
could also seek to benefit from the concessional 15% tax rate, on
dividend remittances from their foreign subsidiaries. On the flip
side though, the absence of any extension of the tax holiday under
the Software Technology Park Scheme (particularly for the small and
mid-tier IT players), proves to be a dampener. Also, the levy of
Minimum Alternate Taxes on Special Economic Zone (SEZ) Developers, as
well as existing SEZ Units (at an increased rate of 18.5 percent of
book profits, such SEZ units being hitherto tax exempt), is a setback
for the industry which has been keenly looking at expansion
opportunities in SEZs.

size="3">On
the indirect tax front, the budget does not seem to have addressed
some of the key concerns of the IT industry in entirety. While
simplified procedures for service tax refunds by SEZ units, and a new
scheme for exporter of 'goods' have been announced, the challenges
currently being faced by IT 'service exporters' have not been
addressed.

size="3">Further,
the demand for clarity on taxation of packaged software has only been
partially dealt with, by providing for an exemption from excise and
customs duty, on the value of licenses for packaged software without
MRP. The industry though was seeking comprehensive clarity under
various statutes, on the over-lapping tax treatment on supply of
'packaged software', vis-a-vis 'licenses' for packaged software. The
industry has also been extended some relief in the form of customs
and excise duty reductions on components of printers and DVD/ CD
drives.

size="3">At
a tax Policy level, the Finance Minister has expressed his continued
commitment to introduce the Direct Tax Code from 1 April 2012 and
take forward the GST roadmap (by seeking to introduce the necessary
constitutional amendments, model GST statute/ rules, etc). This
reiteration is welcome.

size="3">To
sum up, the budget continues to focus on growth, along with fiscal
consolidation and stability as its key themes. The IT Industry though
would believe that this budget could have delivered more,
particularly on the tax holiday extension, though this must be viewed
in the context of the Government's stated policy of convergence with
DTC proposals, and consequent phase-out of most tax incentives.