IT and Software sector’s Budget 2021 expectation

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IT and Software sector in India has been contributing massively to the Indian economy over the past many decades. It plays a huge role in providing large scale employment, tax revenues to the government and continuously expands the tech ecosystems and attracting investments.

However, IT and Software sector like most other sectors experienced a share of the Covid-19 led crisis. The scenario forced the IT and Software sector to change its business and operating models. This also led to work from home (WFH) norm.

Because of the severe impact of the pandemic on other industries and segments. There has a been cascading impact on the IT and Software sector. Though the impact is much lesser in the case of IT and Software sector. But did trigger a debate to bring in certain changes from tax and regulation perspective.

With the upcoming Budget 2021, the IT and Software sector has shared its expectations that may lead to a positive and better impact on the tech and ITeS businesses.

Some of the companies in the IT and Software sector have put forth their expectations to the Finance Minister in context to Budget 2021.

Ashish Dhakan, MD & CEO – Prama Hikvision India
The Indian security industry has played a pivotal role in the country’s economic growth, protecting critical infrastructure and ensuring business continuity. It has shown exemplary resilience during the pandemic in 2020. It was the most challenging year, we as an industry offered to help through innovative security and public safety solutions.

The pandemic government has come up with a very high stimulus package. And with that, the expectation from this budget is set to different levels. Today, India is set out to become the third-largest security industry in the world. We are striving to accelerate and build on this momentum of local manufacturing. India’s security industry has a lot of expectations from the Union Budget – 2021. We are hopeful that the budget this year will meet the expectations by creating a broad policy framework to boost the ‘Make-in-India’ 2.0.

Smart Cities Mission is an important driver of growth in the security industry. The Smart Cities Mission has created a framework to drive economic growth and improve the quality of life by harnessing technology as a means to create smarter outcomes for citizens. The union budget should have major plans and fund allocations to put ‘Smart Cities Mission’ on the fast track. We seek an aspirational budget with a pragmatic approach that taps the latent potential of 1.3 billion Indians while accelerating infrastructure development across the country.

India has the potential of becoming a global manufacturing hub and R&D centre. The Indian security industry needs to adopt the latest technology applications enabled by Artificial Intelligence, Blockchain, Big Data and IoT. The budget should have enough allocations for Skill Development initiatives in the security industry.

Considering the immense growth prospect of the Indian security Industry, we are hopeful that this year’s budget increases the prioritization of growth opportunities and incentives for indigenous manufacturing. For the security industry, initiatives like ‘Make in India’ have helped to enhance the technical capabilities of local manufacturing, skilling and ecosystem development.

We sincerely hope that the Union Budget will address the core issues of the security industry and provide long term solutions. The Union Budget 2021 should provide momentum to strengthen local manufacturing capacity to achieve Atmanirbhar Bharat’s vision.

Satya Prabhakar, CEO & Founder –
The Covid pandemic dealt its most lethal and devastating blow on service sector SMEs who were locked out of work for several months and ensuing sharp decline in business even after the lockdowns were lifted.

The Indian government, taking into consideration that the service sector SME has become the backbone of our economy, must provide relief to this sector in the form of fast-approval guarantee-free loans and allow them GST-free spending for their marketing to start building their business back up.

Mandar Agashe, Founder, MD and VC – Sarvatra Technologies
With the world’s largest immunisation drive already underway, economic recovery will be the major focus of the government. Despite the wreck created, the pandemic has offered a huge impetus to digital penetration throughout the country, which has accelerated in the unlock phase. It is therefore critical the budget draws out bold policy interventions to strengthen digital infrastructure which will eventually help in digitising the overall economy.

The PoS terminal is financially, infrastructurally, and operationally far more affordable and far less demanding than an ATM. However, with just 4 million POS machines active in the country, the budget should consider making devices such as the PoS terminal / mini ATMs’ the most viable acquiring infrastructure for banks and fintech companies by offering an incentive such as a tax subsidy.

Additionally, tax breaks in GST for merchants providing digital payments and tax benefits for companies helping build a digital infrastructure for friction-free digital on-boarding too will catalyse the financial inclusion movement envisioned by the government.

The government should also consider a dedicated fund to strengthen the digital infrastructure of co-operative banks. It will offer a big boost to a more inclusive financial system. Budgetary concessions such as a GST waiver for digital transactions along with incentivization, especially in semi-urban and rural India will further augment cashless payments.

UPI has been a breakthrough, home-grown technology and it is important we replicate its success through newer innovative technologies. Fintechs and technology startups should be encouraged to invest more in R&D to build new products and diversify into newer geographies. The upcoming budget should therefore consider offering tax benefits such as private investments being exempted.

Besides, considering the amount of data being created and stored across industries growing at unprecedented rates, enhancing the security infrastructure to protect and manage data seamlessly should be another focus area. In the post-COVID world, digital infrastructure will be a game-changer for companies and countries and therefore it is important we take timely measures to ride this wave.

Ashok Rajpal, CEO and MD – Ambrane India
The previous pandemic phase has made it necessary for the Indian economy to be self-reliant in all forms. However, being an Indian brand, we expect this year’s budget to be beneficial for all the sectors. With the ‘Boycott Chinese Products’ initiative, we need to invest heavily in the IT infrastructure and manufacturing industry.

Thus, we expect tax reforms for the tech sector to invest solely in the country with major manufacturing and operating units. This will ultimately help India to push the limits and grow in the most unexpected ways. However, the rebates and tax reforms can help India to be the ‘hub of manufacturers in electronics, automobile and textile’ soon.

To give tough competition to leading tech brands worldwide and push post-Covid major setback, ‘Make in India’ initiative should be new normal for the Indians. Empowering and encouraging the MSME’s and small scale manufacturers can lead to a great pool of jobs for the skilled and trained labourers. This results in the acquisition of brilliant minds for creating a ‘self-sufficient India.’

Moreover, we are expecting the introduction of various favourable schemes that can bridge the gap between manufacturers and raw material in a very efficient manner.

‘Digital India’ being the backbone for the Indian economy in pandemic phase needs more attention and a boost to attain good purchasing power from consumers with the availability of almost everything digitally and to maintain a healthier cash flow for the economy.

Lastly, relaxation in the taxation policies can mitigate financial strain from the country which will relatively help better for all the income groups to cope with the previous situations.

Niraj Hutheesing, Founder and MD – Cygnet Infotech
Union Budget – 2021 provides two big opportunities. Firstly, boost economic growth by scaling investment in digitization. Secondly, drive technology-enabled rationalization of the country’s tax infrastructure. The former will bring employment and self-employment opportunities for the youth through digital initiatives of Startups and MSMEs.

The latter will enable businesses to thrive in a simplified indirect- tax compliance regime powered by new technologies like hyper-automation. This will also ensure the funds collected through GST are used efficiently and help in generating economic growth in this financial year. It is important to have a set framework and policy for GST compliance for all businesses in India, let us see how the government addresses this.

Ganesh Subramanian, CFO – Tally Solution
There is tremendous scope for Indian software products to build upon the strength of the Indian IT and Software sector and the innovative & technological capabilities in the country. India has done well in software services and our next big opportunity is in software products.

To realise the potential of the software product industry optimally, there is a need for a framework to work in synergy and ease in certain taxation issues followed by the software product industry, as enumerated below:

· Dispense TDS on purchase of the software: Presently, under section 194 J of the Income Tax Act, TDS @ 10% is applicable on software purchase. The income tax does not make difference in software product and software service.

Software products are classified as Goods. Being a goods, only software product attracts TDS and there are no other tradeable goods that come under the purview of 10% TDS. Particularly, for new startup and new ventures, which are already struggling for working capital, this TDS become additional cash outgo, causing cash crunch to the Industry. We expect that Government either remove this TDS or at least reduce it to 2%.

· HSN /SAC Code for Software Products: There is a big dilemma that exists in the industry about using of HSN/SAC code for software products, especially in case of software products delivered through electronic medium and software as a service (SasS), hosted on the cloud platform. The government may clarify the same.

· R&D incentives to software companies: Till FY 2020, the software product companies were enjoying the benefit through a tax incentive for their spends on research and development. Such benefits extended in the form of additional deduction under section 35(2AB) of the Income Tax Act and were withdrawn since April 1, 2020. The government may extend such incentive schemes or equivalent benefits, to promote R&D in the software product sector.

Mangesh Wadaje, CEO and Director – Highbar Technocrat
As India is spearheading its march onto becoming a dominant economy, India has a long-standing need to develop world-class infrastructure. Fast-tracking infrastructure projects will give much-needed impetus for job creation and economic growth in the post-COVID world.

We expect the forthcoming budget to thrust on the infrastructure development measures and facilitate the spur on technologies, enabling fast-tracking of ongoing and planned infrastructure projects. We are hopeful this year’s budget will provide further opportunities for innovative MSME IT sector to participate in infrastructure projects.

It would be interesting to see how the Finance Ministry considers these expectations from the IT and Software sector and incorporate in the upcoming Budget 2021.

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