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Budget 2018
Last Updated : Feb 16, 2018 01:54 PM IST | Source:

Budget 2018: Attempts to incentivise the digital ecosystem in India

Blockchain, Artificial Intelligence, 3D Printing, Robotics found a special mention in the FM’s speech.

5G wireless broadband technology display in the Intel booth
5G wireless broadband technology display in the Intel booth

Rajiv Chugh

"India with 1.5 billion people is growing at 9%. So how can it be that the US is too big to grow at the same pace?" said the US President to industry captains in Davos.

India’s quest for economic growth, was highlighted by the Finance Minister (FM), in the first five minutes of his speech, where he emphasised on structural reforms being implemented thereby propelling India to become the fifth largest economy in the near future. This bohemia comes on the backdrop of targeting increase in service sector and pushing exports by 15%. This sets the positive mood for the technology sector.

As per NASSCOM strategic review, FY 2017 will see industry revenue touching US$ 154 billion with a growth rate of over 8%. By 2020, India’s IT-BPM sector total revenue is projected to reach US$ 200-225 billion and between US$ 350-400 billion by 2025. Digital technologies will continue to define the sector and revenue from these is likely to have a 23 per cent share by 2020 and over 38 per cent by 2025.

Blockchain, Artificial Intelligence, 3D Printing, Robotics found a special mention in the FM’s speech, with Niti Aayog, government’s policy think tank being mandated to lead the charge on Digital India, the Technology sector can look at more initiatives in the near future.

Impact Analysis

Technology often simmers along for a while before it ignites. The flourishing Indian economy has helped the IT sector maintain its competitiveness in the global markets. India's IT industry has been on the forefront of contributing to India’s to economic progress. The rapidly expanding socio-economic infrastructure has proved to be of great use in supporting the growth of Indian information technology industry. This sector is expected to fill in the missing jobs and to incentivize new additions to work force, the government has combined the period of 240 days over a two year period and give the weighted deduction of 30% in the year this threshold is achieved. Increase in the wage limit beyond Rs 25,000, would have been booster dose.

Promoting the Start-up wave

India is competing to be the third largest tech start-up ecosystem globally (after the US and the UK). The number of Indian tech start-ups are expected to grow from 5,000 - 5,200 in 2017 to 12,000+ by 2020. The distribution is across sectors spanning e-commerce, fin-tech, edu-tech, bio-tech and health-tech.

Acknowledging, the digitally enabled tech entrepreneurs, the government has with the intent to promote start-ups in India extended 100% deductions to eligible start-ups set-up by April 1, 2021 from the earlier date of 1 April 2019 with a turnover less than 25 crores.

The long-term trend for countries to pursue a “low-rate, broad-base” business tax strategy continues in 2018. With India now responding to the twin pressures of BEPS constraints and US international tax reform, taxation of Digital Economy Transactions comes with the tax ambit, however, extending 100% deduction to Start-ups set up till March 31, 2021 is a welcome incentive for the technology sector.

The writer is Tax Partner at EY India

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First Published on Feb 16, 2018 01:54 pm
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