Budget impact on Software Industries

The much debated Software Technology Parks of India (STPI) tax benefit has ended. No more tax benefits for the STPI units.

What does it mean? Small companies in the IT & ITES sector will suffer to compete with others. No impact for bigger companies, as they are not hit much because of this tax benefit.

Small and medium companies price their products / services based on the tax benefits (thought it is not the correct way). In the competitive world, they have to do this.

People look only at the tax payment. Actually, it is nothing but deferring the tax to a future date, as there is a MAT on companies.

After STPI, companies started to look at SEZ (Special Economic Zone). But even SEZ is not spared from MAT (both the developers & Companies operating in SEZ are covered under MAT). This will dampen the profits.

What is there in the budget, which makes the IT sector to smile?

• the surcharge has been reduced from 7.5% to 5%. But MAT has been marginally increased by 0.5% (from 18% to 18.5%).
• reduction of foreign dividend tax rate to 15% for Indian companies
• Lot of IT spending by the Govt towards UID, e-stamping, computerisation for GST means more business for the IT Industries (if it is given to private IT companies).

This budget, i would say, is neutral to the IT / ITES sector. The sunset clause (STPI) was as expected.

I think we should come of the exemption / concession mode and this is in the right direction.

Cheers,

Gopal