Information Technology Sector

 

 

As far as the budget is concerned, it has clearly been a non event for the Information Technology sector. The industry’s long standing wish of extension of the tax benefits under the Software Technology Parks of India (STPI) scheme got not even a mention in the Union Budget. This effectively means that the STPI scheme would now lapse in March 2011. The impact of this is simple the overall tax rates for the IT companies would now go up from next fiscal onwards.

 

The government further increased the MAT by 50 basis points to 18.5 per cent from 18 per cent previously and also levied a MAT on units operating in SEZs. While the industry expected a cut in the MAT rate, the proposed increase and also bringing the SEZ under its purview will hurt the sector further. Thus with no tax benefits in FY12 coupled with the impact of MAT, it is clearly a negative budget for the industry, more so for the mid and the small sized software companies. These have already been struggling post the 2008 crisis and an extension of the benefits would have only meant better profitability, which would be ploughed back to drive their future growth.

 

However, all isn’t really bad for the sector and there is a silver lining too. This is particularly true for companies focussed on the domestic market. The budget has allocated a total of Rs 2091 crore, of which Rs 1087 crore would be towards e-governance programmes, Rs 754 crore for improving infrastructure of the National informatics Centre and Rs 250 crore towards establishing of the national knowledge network. The Central Boards of Direct Taxes (CBDT) and Excise and Customs (CBEC) both are focussing on improving their efficiency by improving their IT infrastructure. While Centralized Processing Centre (CPC) at Bengaluru has increased its daily processing capacity from 20,000 to 1.5 lakh returns in 2010-11, two more CPCs will become operational in Manesar and Pune by May 2011 and a fourth CPC will come up in Kolkata in 2011-12. That apart the CBDT will provide a separate web-based facility to enable a direct, stand-alone interface for taxpayers with the Income Tax Department so that they can report and track the resolution of their refunds and credit for prepaid taxes. All this will create good opportunities for IT companies on the domestic front. But all in all, the budget surely had a negative tone for the IT sector.