There was one major negative surprise in the budget for IT sector. The proposal to extend MAT on export incomes, which was  exempt under Sections 10A and 10B was seen as regressive step that withdraws government’s commitment to provide tax incentives till 2009.

Ramalinga Raju, Nasscom Chairman and Founder & Chairman, Satyam said the pronouncements are quite disappointing from the perspective of the IT/ITES industry and opportunities for further growth of this industry seem to have been compromised quite a bit. This seems to be based on the government’s presumption that the industry has matured enough to do without much of government support. In my opinion, the journey has just begun; global opportunities are not yet optimally utilised. The proposal to extend MAT on export incomes, which are exempt under Sections 10A and 10B is a regressive step that withdraws government’s commitment to provide tax incentives till 2009. This could affect investor confidence and growth in this sector, which is not only India’s biggest exporter (US.6 billion in 2006-07) but is the biggest employer in the organised private sector. It is our expectation that the introduction of MAT will be accompanied by an extension of the STPI scheme (and Section 10A, 10B benefits) by 10 years. The selective pass-through status for venture funds and service tax on property lease will particularly affect SMEs and start-ups. The pass-through does not seem to include the BPO sector (including animation, gaming and KPO), a segment, which accounts for about three-fourths of the IT sector venture funding. Also, the application of service tax to leased space will adversely affect SMEs, which do not own office space and reduces the competitiveness of India vis-à-vis other destinations. Fringe Benefit Tax to ESOP is a big negative hit, as ESOP is a great tool to retain and enhance talent base and address the attrition issue, which is a major concern for the IT/ITES industry. It is a big impediment for us and definitely not in keeping with international practice.

V Sundarajan,CFO,Aztecsoft Limited, said that as far as IT industry is concerned absence of any announcement on its demand for extension of the Sec 10 A / B benefits beyond Mar 2009 is disappointing. The government is paving way for the industry to get ready by introducing the MAT of 12.22%. This will seriously impact companies of recent origin while older units may already have commenced paying taxes.