President Pranab Mukherjee with Finance Minister Arun Jaitley at a meeting at Rashtrapati

Bhavan before presentation of the annual budget in Lok Sabha in New Delhi

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

BS Reporter | Pune February 28, 2015 Last Updated at 20:09 IST

FinanceMinisterArunJaitleyduring hisBudget2015speech

acknowledged the concerns of the $150 billion Indian IT industry. Even though he did not announce any bigbang measures for the industry, experts said that the fine print of the budget has a few positive measures forthe industry.

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

“The removal of customs duty on components and concessional structure of 2 per cent without CENVAT

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credit are positive steps to encourage tablet manufacturing in India. However it disappoints as no initiativeshave been taken to increase PC manufacturing and promote exports,” Amar Babu, president of industry bodyManufacturers’ Association for Information Technology (MAIT), said. “In this budget, we might have missedan 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 comedown from 25 per cent to 10 per cent. The FM also mentioned that the government will bring in a publicprocurement 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 ofthe industry were not addressed. “We had made recommendation on removal of tax on Angel funding, thathas not been addressed. The industry has been facing dual taxation on products as some get charges bothservices and sales tax, but that too has found no place in the budget. Though corporate tax has been reducednothing 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/ITeSsector use the latest global technologies to improve their offerings. The thrust to Make in India initiatives willalso benefit the sector directly and indirectly. The introduction of place of effective management rules willhowever 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 globalcapital, incubation facilities in centres of excellence, funding for seed capital and growth, and ease of doingbusiness etc. would be addressed for creating hundreds of billion dollars in value. Though the Minister did notgive 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 astatement that the needs of the IT industry will be addressed in terms of ease of doing business, capital accessetc. However, without reviewing the details of exactly how this is to be done, we will need to adopt a waitand watch approach to see how effective it will be. Reducing the tax on R&D and innovation investments to10 per cent is a very positive move, both from the point of view of facilitating technology transfer as well asincentivising companies to invest more in driving innovation. Along the same lines, the nod to the ‘start-upecosystem’ in the country is a major positive. This is the first time such language has made its way into thebudget and a good reflection of the fact that job growth has to be broad based by facilitating the SMEsegment 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 Rs20 crore from Rs 5 crore and gradual reduction in headline corporate tax rate over 4 years from 30 to 25percent, with phase-out of industry specific exemptions, is also positive for the industry.

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