| Budget Measures |
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The government conceded to the NASSCOM demand of having more IITs. Roorkee Engineering College will be upgraded to an IIT. The base of IIT is also to be increased and RECs (Regional Engineering Colleges) are to be strengthened.
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Onsite services for companies located in STPS (Software technology parks) and EPZ (export process zones) to be exempt from taxation. This is to be also extended to software companies outside the STPs and EPZ.
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Anti ‘Mergers and Acquisitions’ provision in section 10A/10B relaxed for IT companies.
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Customs duties on information technology and telecommunications products kept at 15%. Surcharge on custom duty of 10% is also removed.
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Key government departments to be fully computerized by 31st March 2002
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Software companies can now invest abroad upto US$ 100m or 10 times their export earnings whichever is higher.
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FII limit increased to 49%.
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Companies can use 100% for the ADR/GDR proceeds to invest abroad.
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| Budget Impact |
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The increase in IITs and strengthening of RECs would effectively increase human resource supply to the IT industry. One of the biggest concern for the industry is the rising employee costs.
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The exemption of onsite service revenues from taxes would reduce the tax outflow for the industry and will boost their bottomline.
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Software companies in India can acquire other companies within the country without loosing tax exemption due to removal of the anti merger and acquisition clause under section 10A and 10B.
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Removal of surcharge on custom duty would make hardware cheaper thus lowering capital expenditure for the software companies.
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Raising the limit for investment overseas would enable the Indian software companies to acquire larger software companies abroad. This would enable Indian companies gain a stronger foothold in the overseas markets.
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Computerisation of the key government departments would generate more business for both the software and hardware companies.
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With the increase in FII limit to 49% capital would be available more easily to the software companies.
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Industry wish list
Taxation:
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No tax on e-commerce transactions and keep software companies out of service tax purview and a clarification whether onsite projects would continue to get tax exemption as given to 100% export oriented units.
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Software units in backward areas should get tax exemption under section 10A/10B of the Income Tax Act like manufacturing firms. However, the primary differential is that software industries are not labour intensive. The companies being knowledge intensive would provide employment opportunities to qualified professionals. Backward areas may not be able to cater to these requirements.
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Special schemes for students and educational institutions, so that import duties, excise, sales tax are not applicable on sale of computers and software to schools and educational institutions.
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Due to physical bonding by customs applicable to software companies cannot move machines out of their offices in special zone like Export Process Zones. The software industry would like this law to be removed.
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Removal of withholding tax.
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| Infrastructure: |
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Provide better bandwidth and last mile connectivity. According to Nasscom’s Survey, the International and national bandwidth requirement in India by 2005 is expected to reach 300Gbps, from the current demand of 5Gbps. The current availability is just 390 Mbps
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Funds allocation for up gradation of Regional Engineering College’s and ultimately setting of IITs in every state in the tenth five-year plan. This is to meet the possible manpower shortage for the IT industry.
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Raise the limit of FII investment up to 49%
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| Environment: |
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Delete the anti `Mergers and Acquisitions’ provision in Section 10A/10B of the Income Tax act. According to this if there is a change in the ownership due to mergers or acquisitions between Indian companies the tax holiday for software companies ceases.
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Easy RBI norms for acquisitions of IT firms outside the country.
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| Hardware industry wish list |
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Reduction of excise duty from 16% to 8% and abolition of SAD (special additional duty) .
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Duty on imported parts and components including items of dual usage be bought down to nil and or the terminal year for nil duty be extended to 2005.
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A minimum of 10% duty differential between input parts and components and finished goods.
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