Amid Downturn, IT Eyes the Union Budget with Great Expectations

With just a matter of weeks until Finance Minister Nirmala Sitharaman takes to the floor of parliament with her red briefcase in tow to unveil the union budget for 2023–2024, speculation is running high about the government’s plans for boosting India’s economy. 

Recently, Minister for Road Transport and Highways Nitin Gadkari said that India is on track to achieve a GDP of $5 trillion by 2024–2025. But achieving this ambitious goal will require a concerted effort from all sectors of the economy, perhaps none more so than India’s IT industry.

In a world where major tech companies face the harsh realities of budget cuts and layoffs, Indian IT is thriving. According to the International Data Corporation (IDC), India’s IT and business services market was valued at a staggering $7.15 billion between January and June 2022. The industry saw even greater growth in the first half of 2022, with IT services expanding by 8.1%, compared to 7.3% during the same period in 2021. 

Latest Gartner prediction projects that India’s IT sector spending would increase by 2.6% in 2023, driven primarily by the software sector’s strong growth of 13.7%. It is evident that the Indian IT industry has a lot to offer in the future and, naturally, has certain expectations with the Union government with regard to the budget. 

In its pre-budget memorandum, industry body NASSCOM has urged the government to reduce the minimum alternate tax (MAT) for eligible start-ups under Section 80IAC of the IT Act from 15% to 9%. The organisation also called for expanding the safe harbour margins policy, which only applies to companies with turnovers of up to INR 200 crore. 

This, according to NASSCOM, results in a limited number of companies being able to take advantage of the policy. The organisation has recommended that the government review the policy and increase the applicability threshold by notifying safe harbour margins for entities with turnovers of up to INR 1,000 crore and rationalising the safe harbour mark-ups in line with existing benchmarks.

Aim Insight: When certain requirements are met, a safe harbour is a legal clause that allows parties to avoid or completely escape legal or regulatory obligations in specific circumstances.

What industry experts demand

Analytics India Magazine reached out to several IT experts to know more about what the industry really wants from the government.

As per Arun Kumar, CFO of Newgen, “Initiatives like long-term work-from-home policies, simplification of the GST regime, and streamlining labour laws can facilitate a less-ambiguous and conducive business environment”.

Kumar also believes that there is an urgent need to simplify the foreign withholding tax structure to ensure that full set-off is available to IT companies operating in multiple countries. Citing the need for improvement in Special Economic Zones-related policies, he said, “SEZ drives the Indian IT sector’s growth. Improvements in SEZ-related policies and their extension will help strengthen the sector further”.

However, S. Mukundhan, Group CFO, Fulcrum Digital, believes that there are some changes to SEZ rules that could be looked at to ensure technology businesses can reap these benefits, including smoother processes for the movement of goods between two SEZ units, scrapping of old computers and laptops after paying the residual duties in the open market, and simplifying the permissions process to facilitate remote working. 

Additionally, Kumar advises the government to stay mindful of the recent disruptions in the sector caused by the pandemic and ongoing global business uncertainty. He says, “The upcoming Union Budget is expected to bring conducive policy initiatives to incentivise the IT sector and accelerate its growth”.

However, Puneet Gupta, VP and managing director, NetApp, believes that in 2023 and beyond, upskilling of talent in an environment driven by technology will be mission-critical. 

“The government has made great strides towards this through the Skill India program. In this year’s Union Budget, it would be good to see more investments and programs in upskilling, as this is an important factor towards achieving the collective Digital India dream of our nation,” says Gupta. 

Talking about Corporate Social Responsibility (CSR), Mukundhan believes that it would be welcome if the government relaxed the mandatory spending on CSR activities for companies with 5 crore net profit by increasing the threshold to companies with 50 crore net profit. 

“Additionally, while calculating net profits, the remuneration paid to professional employees should not be added back. This would ease some of the burdens on MSMEs,” says Mukundhan. “In terms of the personal income tax threshold, it would be beneficial for businesses if the ministry revised the existing limits.”

To do away with the numerous tax exemptions, Mukundhan believes that an alternate method of income tax computation without exemptions could be looked at, but with lower rates and higher basic exemption limits.