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Budget 2016 Mixed Bag for IT sector and Tax Reforms

NASSCOM Budget 2016

The Union Budget 2016 strived to extol the entrepreneurship ecosystem and someway eschewing the IT sectors.  In the backdrop of global economic volatility, there are unmet expectations on policy announcements that enable ease of doing business for our sector, said NASSCOM.

Though the premier organisation for the Indian software industry welcomed the Union Budget 2016, acknowledging the reiterated the 7.6% GDP growth rate for the country which underlined slew of incentives for the rural, agricultural sector but did assert it as a mixed bag for the IT sector.

Terming on the extended accountability on Section 80 JJAA now applicable to services companies as well, is a boost for BPM companies who have been at the forefront of creating employment. Startup India announcement of 3 year income tax exemption welcome, though continuing MAT imposition a dampener.

NASSCOM felt there is clarity on full CENVAT credit for input services exclusively used in taxable output streams.  DTAA benefits of reduced or NIL withholding tax for payments made to non-resident investors by AIF (category I and Category II) restored, and 10% withholding removed.

Equalisation levy on consideration for any specified service received or receivable by a person, being a non-resident. Specific service currently includes online and digital advertisement, said a statement.

Mohan Reddy, Chairman, NASSCOM said, “Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and ecommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome though the imposition of MAT on startups will not allow the full impact of the benefits to be realized”

Though the premier body felt few proposal have been overlooked which includes;

Removal of dual levies on software products not addressed, Domestic investors continue to face higher tax rates –  Angel taxation, higher long term capital gains tax.

Revision of criteria to carry forward losses to allow for capital infusion in business not considered. Transfer pricing issues related to safe harbor margins, APA roll back rules not notified. Rationalisation of tax structure awaited. So far announced for new units in manufacturing set up on or after 1 March 2016

No roadmap on MAT and different cess rationalization, R&D credits not applicable for technology sector, lowering of deduction rate not conducive to encouraging tech R&D. Clarifications not provided on place of provision of service rules

“The finance minister’s speech had a strong emphasis on leveraging technology to transform India. The initiatives announced today combined with swift implementation of Digital India will help to digitize India and provide effective citizen services. We would urge the government to move forward at a swift pace and build an effective PPP model” said R. Chandrashekhar, President, NASSCOM.


Niloy Banerjee

A generic movie-buff, passionate and professional with print journalism, serving editorial verticals on Technical and B2B segments, crude rover and writer on business happenings, spare time playing physical and digital forms of games; a love with philosophy is perennial as trying to archive pebbles from the ocean of literature. Lastly, a connoisseur in making and eating palatable cuisines.

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