The global financial meltdown and the strengthening dollar pulled down the Indian IT sector last year. The sector, which had been a major contributor to India's GDP, rebounded strongly from the global crisis by diversifying itself into various industry verticals and new geographies.
The worse hit by the meltdown was the business process outsourcing or BPO industry. And with US President Barack Obama planning to cut outsourcing, the future does look tense. The government needs to address the problems of the BPO sector, which is a significant contributor to India’s export earnings.
Extension of tax holidays or Sunset clause for IT companies were the most promising step taken in last year's budget. Also, exemption of service duty on packaged software from 12% to nil provided a further fillip. The duty waiver will prevent double whammy tax for IT enabled services.
However, closure of tax holidays extension from April 2010 would materially impact the bottom line of IT companies. The need of the hour is continuation of tax holidays.
Budget Proposals
2009
- Extension of Sunset clauses by one more year for deduction in respect of export profits under sections 10A and 10B of the Income-tax Act.
Companies impacted by Budget Proposals: Infosys, TCS, Wipro, HCL Technologies.
2008
- Increase in education outlay by 20% to Rs 34,400 crore
- Increase in excise duty on packaged software from 8% to 12%
- Imposition of 12% service tax on all customized software services
Companies impacted by Budget Proposals: Infosys, TCS, Wipro, HCL Technologies, Educomp, Everonn, NIIT
2007
- Extension of MAT to IT companies
- IT companies will be taxed at 11.33% on book profit
- Inclusion of ESOPs in FBT with effect from 1st April 2008
- Increase in e-governance outlay; Hike in education allowance by 34.2% to Rs 32400 crore
Companies impacted by Budget Proposals: Infosys, HCL Technologies, Wipro, TCS, Polaris
2006
- Reduction in FBT on Tours and Travels and Hospitality to 5%
- Exclusion of medical expenses from FBT
- Increase in excise duty on packaged software from Nil to 8% Companies impacted by Budget Proposals: Infosys, TCS, KPIT Cummins & VisualSoft 2005
- Exemptions under Section 10A & 10B to continue
- Service Tax unchanged at 10%
- Reduction in customs duty on ITA bound items
- Imposition of 4% CVD on all imports of ITA-bound items and their inputs
Companies impacted by Budget Proposals: Infosys, TCS
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