Source | The Economic Times : By Girish Vanvari
In India, the Information Technology (IT) sector plays a vital role in the growth of the economy. During the Financial Year (FY) 2016, the Indian IT-BPO sector contributed nearly 9.3% of India’s GDP with revenues of USD 143 billion. During FY2016, the industry’s exports were valued at USD 108 billion, which was nearly 76% of the total revenue and contributed more than 45% share in India services exports. This sector is India’s largest and most diverse private sector employer, with a direct workforce nearing 3.7 million. (Source: NASSCOM, 2016)
The year 2016 saw a major economic decision, when the government announced demonetisation on November 8. As the demonetisation initiative encourages the use of plastic and electronic money, India is already witnessing a massive shift to digitization. Further, the ‘Digital India’ and ‘Make in India’ initiatives immensely rely on the IT sector for its continued success. India Inc therefore expects the focus of the Union Budget 2017-18 (Budget 2017-18) to be more on enhancing digital literacy, improved connectivity and access to technology. This will enable citizens to experience digital transformation.
As the government continues to introduce number of economic programs, there has to be parallel focus from the government to harness the development of IT sector in India and provide a platform to further strengthen it in view of global competition from developing countries. While the introduction of Goods and Service Tax (GST) is a welcome step but there still are few areas from tax and regulatory perspective which could boost long term growth of the IT sector in India. The IT sector has colossal expectations from Budget 2017-18,, some of which are summarized below:
Potential R&D benefits
India is being considered as a Research and Development (R&D) destination by many MNCs worldwide who have set up R&D entres across the country. The Indian government recently decided to provide a fund of up to 60% of the R&D cost for developing indigenous low-cost electric technology that can help power two-three wheelers vehicles operating in public spaces, a move aimed at reducing pollution. This is a great move by the Indian government. Thus, in order to boost R&D activities in the IT sector, the government can clarify the ambiguity in Section 35(2AB) of the Income-tax Act, 1961 to include manufacturing of computer software or introduce weighted deduction or other tax incentive on R&D activities carried out by companies engaged in the IT sector.