Mumbai:

The budget has proposed the continuation of the concessions extended to the IT sector under Sections 10A and 10B of the Income Tax Act, as originally envisaged.

The benefit of such tax exemptions (which relate to export profits by software companies) will remain even in the case of an amalgamation or a demerger, the finance minister said.

“Restoring tax benefits was the main concern for the industry. We are delighted that the government is sticking to its commitment. The world market is going through tough conditions but we are doing well, thank you. It is good that these tax breaks are being restored, otherwise the growth momentum of our industry would have been lost,” says National Association of Software and Service Companies (Nasscom) president Kiran Karnik.

As per the existing law, companies that are currently covered by these tax exemptions lose the benefits upon change in their ownership or shareholding. Singh said such a distinction is not logical and is, hence, being done away with.

The finance minister also proposed a slew of other initiatives to not only sustain the growth in these two sectors, but also to impart momentum to it.

The budget has also proposed that the value of preloaded software should be excluded for the purpose of charging excise duty on computers. This rectifies another existing anomaly wherein software was already exempt from excise duty but the benefit was unavailable when it was loaded on to a computer.

The customs duty on specified electronic components for the IT industry will also be reduced in conformity with India’s commitments to the World Trade Organisation (WTO), Singh said.

In addition, customs duty on a slew of capital goods used by the telecom and IT sector for the manufacture of components will be reduced from 25 per cent to 15 per cent.

For optical fibre cables, used widely for networking to provide bandwidth to the IT community, the budget proposes to cut customs duty from 25 per cent to 20 per cent.

To help the domestic industry manufacture e-glass roving, used for making optical fibres, the budget has proposed a cut in import duty on specified raw materials for the manufacture of e-glass roving from 30 per cent to 15 per cent.

The tax holiday enjoyed by telecom and domestic satellite service companies has also been extended by one more year, till 31 March 2004.

The budget proposals drew a favourable response from the industry ().

Says Tata Consultancy Services chief executive officer S Ramadorai: “I am extremely pleased with the tone and content of this year’s budget proposals, since they very clearly aim to put India on the global map in terms of competitiveness, which is imperative given the WTO requirements.

“For the IT sector, the continuation of benefits under Section 10A & B as well as the proposal for continuation of the tax benefits even in the event of a change in the shareholding pattern are very welcome. The finance minister should be complemented for the overall proposals in the areas of biotechnology and R&D, as well as the reduction in tariffs in the IT and telecom sectors.”

Says Sify managing director and CEO (Chennai) P Ramaraj: “The focus on infrastructure development, measures on corporate and individual tax, reduction in excise and customs duties are all welcome steps that would result in employment generation, consumer confidence and spending and growth.

“From the Internet and networking industry point of view, the reduction in the customs duty on capital goods from 25 per cent to 15 per cent and on fibre optic cables from 25 per cent to 20 per cent are welcome moves that will encourage investment in network infrastructure and upgrading.”