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Feb 02, 2019

Budget 2019: Lower tax, more disposable income for young IT crowd

Source: Deccan Chronicle

Author: Pradeep Kar, Founder, Chairman & Managing Director, Microland Limited

The vision to create a Digital India that reaches every sector and corner of the country was outlined in the budget speech.

One of the notable aspects of the budget speech by Finance Minister Piyush Goyal was the liberal sprinkling of the word “digital” as it came up 11 times. Let’s examine some of the key mentions.

More than three lakh Common Service Centers (CSCs), employing about 12 lakh people, are digitally delivering services to people and are set to expand their services. They will also create digital infrastructure in villages in the hope of converting them into digital villages. In fact, the government promises to create 100,000 digital villages over the next five years. This is commendable, as it will improve digital infrastructure at the grassroots of the nation.

The Indian Customs will also introduce digital systems. Clearly, this is aimed at making import and export transactions faster and more transparent. But given that details were not given on the initiative, it is difficult to spell out its impact.

In the next two years all tax assessments and scrutiny will be done electronically, eliminating the need for taxpayers to interact with the officials concerned. All returns will be processed in 24 hours with refunds processed simultaneously. When this happens, citizens will experience the true power of the digital world, which can speed up processes, reducing vigilance and bureaucracy to a minimum.

The vision to create a Digital India that reaches every sector and corner of the country was outlined in the budget speech. Our youth, said the Finance Minister, will lead us in this nationwide digital endeavor with innumerable start-ups creating a Digital India and millions of jobs in this eco-system. Although no specifics were mentioned, one assumes that the government will re-examine the angel tax, putting investors and start-ups at ease and setting off the government’s vision to a positive start. Nothing, not even the Union budget, it seems can ignore a mention of Artificial Intelligence. To take the benefits of Artificial Intelligence and related technologies to the people, a national programme on ‘Artificial Intelligence’ has been announced. One assumes that the related technologies will include, at the very minimum, Cloud, Data Sciences, Analytics, Blockchain, the Internet of Things, Machine Learning, Cybersecurity, Cognitive Intelligence, Virtual Reality and Augmented Reality. Hopefully, budgetary allocations on technical skilling, research and development and higher education will catalyse the national programme on Artificial Intelligence. It is also necessary to incentivize institutions that impart technological training and skills in Tier 2 and 3 cities though tax rebates and other schemes. Perhaps this will happen soon in the wake of the national programme on Artificial Intelligence. However, overall, the programme on Artificial Intelligence is a positive sign for technology organisations as it emphasises the importance accorded to next gen technologies by the government.

For the IT industry, the announcement of raising the Income Tax exemption slab to Rs 500,000 is of interest. Even those earning up to Rs 6,50,000 may  not have to pay tax if they use tax saving investments. The total tax benefit could be Rs 18,500 crore for an estimated three crore middle class taxpayers. Clearly, lowering tax means entry level IT employees will have more disposable income, especially in the BPM business. The indirect impact of this could be to moderately bring down the cost of operations.

NASSCOM’s figures show that India’s IT-BPM industry today employs around four million people. This workforce helps India corner 55 per cent of the global business in this space, making us leaders. The sector comprises over 16,000 firms across technology segments, has over 8,000 organisations in the digital solutions space and over 17,000 organisations offering a complete range of services. The tax benefits will percolate down to this growing sector, ultimately having a positive impact on GDP.

There are other issues facing the IT industry that need a resolution. For example, there is a need to ensure that foreign tax credit provisions are in keeping with trends and supportive of global Indian businesses. Many would have expected the budget to reduce the TDS, especially for Tier 2 and 3 technology organisations in an effort to improve their cash flow. Aside from this, measures must be taken to incentivise investments in technology. The budget had no indication for those looking for pointers to these issues.


This article was originally published in the Deccan Chronicle on Feb 02, 2019 and can be viewed here.