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Post Budget Scenario


Software Industry

Budget Offers
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.

Surcharge on custom duty of 10% is also removed. Key government departments to be fully computerized by 31st March 2002 Software companies can now invest abroad upto US$ 100m or 10 times their export earnings whichever is higher.

This is to be also extended to software companies outside the STPs and EPZ. Anti 'Mergers and Acquisitions' provision in section 10A/10B relaxed for IT companies.

Onsite services for companies located in STPS (Software technology parks) and EPZ (export process zones) to be exempt from taxation.

Customs duties on information technology and telecommunications products kept at 15%.

FII limit increased to 49%. Companies can use 100% for the ADR/GDR proceeds to invest abroad.

The Impact
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.

The exemption of onsite service revenues from taxes would reduce the tax outflow for the industry and will boost their bottomline.

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.

Removal of surcharge on custom duty would make hardware cheaper thus lowering capital expenditure for the software companies.

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.

Computerisation of the key government departments would generate more business for both the software and hardware companies. With the increase in FII limit to 49% capital would be available more easily to the software companies.