SEZ India Invest
         
 
 
 
 
More....
 
 
 
 
 
Impact of Union Budget 2008 on Information Technology

Every year the Union Budget brings with it certain important reforms whose impact on certain sectors is either positive or negative. This year’s Union Budget has roped in the Information Technology sector in a major way.

In the run up to budget 2008, key concern included extension of the tax holiday for STP/EOU beyond 2009, roll back of MAT on STP units. On the indirect tax front the industry expected Finance Minister to address the controversy on Service Tax Vs Sales tax on Software development and extension of Service Tax Refund benefit to cover software exporters as well.

There has been Enhancement in allocation to DIT for establishing 100,000 broadband internet enabled Common Service Centers in rural areas, establishing State wide Area Networks(SWAN) and State Data Centers.
 
Impact- Favorable Impact-Favorable
Reduction in personal taxation rates and increasing the threshold exemption for applicability of Income Tax would substantially benefit the employees as the industry employs large workforce. The increase of the threshold limit to
Rs. 1,50,000 and reduction in effective taxation of employees drawing annual taxable salary of Rs. 5,00,000 by Rs. 45,320 would virtually benefit the entire workforce.

Current Slabs (INR)

Proposed Slabs (INR)

Rate of tax

Up to 110,000

Up to 150,000

Nil

110,001–150,000

150,001 – 300,000

10 %

150,001–250,000

300,001 – 500,000

20 %

250,001 and above

500,001 and above

30 %
  • Basic exemption limit for resident women below 65 years of age increased from INR 145,000 to INR 180,000.

  • Basic exemption limit for resident individuals aged 65 years or more increased from INR 195,000 to INR 225,000.

Customs duty has been reduced on specified convergence products from 10% to 5%, on specified raw materials and inputs for use in IT/electronic hardware industry from 10%/7.5% to Nil on end-use basis and on specified parts of set-top boxes from 7.5% to Nil on end-use basis. This will certainly reduce the cost of production / services.

Tariff sub-heading Number Description Pre-Budget Rate Post-Budget Rate Notification No. Remarks
8517 Wireless data modem cards with PCMCIA or USB
or PCI express ports		 4% NIL 20/2008- Customs Basic Customs Duty
8529 SMPS power board, IR module 10% 5% 21/2008- Customs Basic Customs Duty

General rate of excise duty (CENVAT) has been reduced from 16% to 14% which will reduce the cost of hardware and the capital assets used in the industry.

Tariff sub-heading Number Description Pre-Budget Rate Post-Budget Rate Notification No. Remarks
8517

Telephone sets, including telephones for cellular networks or for other wireless networks Wireless data modem cards with PCMCIA or
US or PCI express ports

 16% NIL 6/2008- Central Excise  
8528 Monitors and projectors, not incorporating television reception apparatus, reception apparatus for television, whether or not incorporating radio broadcast receiver or sound or video recording or reproducing apparatus 16% 16% 6/2008- Central Excise All goods under heading 8528 has been omitted
Impact - Un Favorable Impact - Un Favorable
There is no extension of tax holiday enjoyed by units in Software Technology Park (STP) under section 10A of the Income Tax Act, 1961 which shall come to an end on 31 March 2009. Since the performance of these units are already adversely affected due to the US

recession, Rupee appreciation against the US $, applicability of MAT etc., it would be a real challenge for this sector to sustain their performance in the coming years. As such, such units in STP would come under the full tax regime from the financial year ending on 31 March 2009.

The Budget introduces a new Information Technology Software Service under section 65(105) (zzzze) of the Finance Act’1994 which was earlier excluded from Service Tax by specific exemption from Business Auxiliary Services. The Term ‘Information Technology Software’ has been defined in a wide manner under section 65(53a) of the Finance Act’1994. The service tax on customized software is a negative for technology companies but it will be passed on to the clients. The increase in excise duty for packaged software will lead to increased piracy.

Under Service tax regime, Information Technology software services has been widely defined and added to the list of taxable services chargeable to tax @ 12.36%. This will be the additional burden on the domestic software.

The rate of duty applicable to clearances of goods to DTA from EOU, STP, EHTP etc. has been revised from '25% of the basic customs duty plus excise duty payable on like goods' to '50% of the basic customs duty plus excise duty payable on like goods'. In other words, this shall increase the cost of goods by additional 25% of custom duty payable on such goods.

Vide Notification No. 10/2008 – C.E., dated 1-3-2008, effective from 1-3-2008, duty calculation in relation to goods cleared under Sl. No. 2 of Notification No. 23/2003 C.E., - dated 31-3-2003 has been amended in the following manner:

 

Particulars

Upto
29-2-2008

On or after
1-3-2008

Assessable Value

Rs. 100

Rs. 100

Effective Basic Customs Duty based on exemption

25% of 10%
Rs. 2.5

50% of 10%
Rs. 5.00

Additional Customs Duty Under Section 3(1) of the Customs Tariff Act’1975 (CVD)         

16% of
Rs.(100+2.50)
= Rs.16.40

14% of
Rs.(100+5.00)
= Rs.14.70

Additional Customs Duty Under Section 3(5) of the Customs Tariff Act’1975 (SAD)         

4% of Rs. 116.40
= Rs. 4.65

4% of Rs. 114.70
= Rs. 4.58

Total duty payable

Rs. 23.55

 Rs. 24.28
 
 
 
 
Copyright © 2008 SEZIndiaInvest. All Rights Reserved