To provide a level playing field to the domestic IT industry, the customs duty on specified capital goods and all inputs required for the manufacture of Information Technology Agreement (ITA) bound items has been removed.

The additional countervailing duty (CVD) of 4 per cent has been imposed with immediate effect from March 1, 2005, only on items bound under the ITA, and on specified inputs / raw materials for manufacture of electronics / IT goods. Credit for the CVD will be available against payment of excise duty.

IT software and documents of title conveying the right to use IT software will not be subject to this levy.

The zero customs duty on items bound under the Information Technology Agreement continues.

There will be no significant impact on software companies, already operating under a favourable tax regime.

Budget reactions

Ramalingam Raju, managing director Satyam Computer services
We are quite pleased with the Finance Minister's focus on "Bharat Nirman" which stresses on development in the areas of irrigation, roads, water supply, rural electrification, housing and rural connectivity in the coming four years. The reduction in corporate income tax is welcome and decrease in fiscal deficit reflects the intention to adhere to financial discipline.

However, some initiatives that could have allowed for greater participation of the industry in the areas relating to corporate social responsibility would've been welcome.

The continuation of policies in the IT sector coupled with the intention to give priority to employment generating sectors is a positive signal to the industry. Any support for providing education and training for potential entrants into the sector would further help in sustaining a competitive advantage for the industry. The equity participation scheme for SMEs is encouraging and contributes to the overall growth of the IT sector.

Lakshmi Narayanan, President and CEO, Cognizant Technologies
The investments in the social sector such as education and healthcare is welcome as it could expedite the progress of the knowledge economy. We are concerned about the wide sweep on fringe benefits taxation, as there are some genuine business expenses that are indicated as benefits. As an alumnus of the Indian Institute of Science (IISc), it's a matter of pride that the government has identified this institution of higher learning for a focused Rs100-crore funding to further raise educational standards to the levels of Harvard, Stanford, Cambridge and Oxford. Such global benchmarking is an important step towards integrating India into the globalising economy, branding it appropriately, and gaining mind-share.

The FM's statement about the need to have global mindset and leverage 'international best practices' was quite refreshing. For the Indian economy to outpace its current growth levels, global benchmarking and increased FDI are the way forward, and I am happy that the government is laying commensurate emphasis on it.

Lav Nigam, managing director, Cendura Software
The Finance Minister has not taken any new initiative for the IT software sector. Software export units should have been exempted from paying custom duty on goods imported for development purpose.

Brij Mohan, CEO, Pointsoft
Budget 2005 is probably not the best in terms of SME interests or for the common man. It tried to balance between core sectors and the fast growth technology segments. While the core segments like infrastructure, cement, textile etc have a cheer, the IT has not much to cheer about, especially IT companies in the services sector. The negative observations about corporate perquisites is not in the interests of corporate growth in the SME. Pushing people towards savings by force is not welcome - savings should be by choice and need based plan.

Vinay Mehta, general manager and managing director, Convergys IMG India.
Overall there was not much of an impact to the IT and Telecom sector in the budget, with one notable exception - the introduction of the Fringe Benefit Tax. We are still evaluating the implications of this seemingly new tax, but on the face of it, we will be exposed to significant new taxes. For example, foreign travel, which represents a significant portion of globalised business generally, and software industry specifically, will now be taxed.

T V Mohandas Pai, CFO, Infosys Technologies
Provide clarifications on interpretation of the statute provisions of section 10A / 10B of the Income Tax Act. There should be provision of full tax neutralisation in India on global income for taxes paid abroad.

Take a re-look at India's double taxation treaties with other countries as the withholding tax on royalties and fees for technical services is between 10-20 per cent and this was during an era when India was a net importer of technology and the changed scenario warrants a revision in the withholding tax rates to around 0-5 per cent.

Ravi Ramu, CFO, MphasiS-BFL
Clarification needed regarding the uncertainty over the recent interpretation of the Section 10A / 10B benefits.

E-commerce taxation is an issue that has been left open for a number of years. Specific guidelines on 'permanent establishment' and related tax consequences need to be clearly formulated. The cumbersome requirement for IT companies to prepare Softex Forms to be submitted to STPIs surely needs to be done away with since it no longer seems to serve a purpose at all.

In keeping with the requirement to bridge the digital divide and to spread the use of IT in a meaningful manner across the country, STPI units should be set up, to begin with, in key district headquarters.

Nasscom's wish list
Take a fresh look at issues like taxation of non-residents outsourcing IT-enabled services to India.

Resolving various issues relating to Sections 10A / 10B such as definition of export turnover, realisation of export proceeds, maintenance of separate books of accounts and deductions under Section 10A / 10B vis-à-vis under Section 80HHE.

Exclude cross-border sale of software from the definition of 'royalty' in order to reduce the cost of software for end-users, unless the buyer gets the underlying copyright(s) in the software, which enable them to replicate the software for commercial use and reaping profits.

Indirect Tax issues, such as elimination of all other duplicate levies, even before the introduction of VAT, phasing out Central Sales Tax (CST) upon introduction of VAT, lowering CST on computers and other IT products to 2 per cent, and issuance of Form C for provision of services should be permitted so as to enable STPs to avail the CST refund benefit.

Abolition of custom bonding by BPO companies / ITES / software companies operating under the STP / EOU scheme, allow them to import duty-free goods without approval of government agencies, and allow infrastructure sharing to such EOUs / STPs to improve operating efficiency and economies.