The National Association of Software Services Companies (Nasscom), in its pre-Budget recommendations, requests the government to ‘create a conducive policy environment that can help sustain and grow’ India’s information technology (IT) and business process outsourcing (BPO) industries.
Among other things Nasscom recommends that the Department of Information Technology implement a special scheme that gives small and medium IT firms a tax reimbursement; or employment linked incentives. Similar provisions should be available to companies that set up shop in Tier 2 and Tier 3 cities in the country.
It has also recommended that for technical services, the rate of deduction of TDS be brought down to two percent, from 10 percent.
Highlighting the plight of India’s small and medium IT firms, Nasscom says these firms are facing the heat given the volatility in the markets. The Special Economic Zone (SEZ) Act, which accords income tax (IT) exemption for a defined period for companies housed within SEZs, does not permit small firms to set up shop within an SEZ. This creates a non-level playing field for smaller companies, and therefore the first recommendation.
For SMEs operating in the domestic market, deduction of 10 percent TDS under section 194J leads to blockage of funds as these companies are most often not profitable or have very low profitability, therefore the second recommendation.
Tax related issues, transfer pricing and support for small and medium IT firms are the focus areas in this year’s pre-Budget recommendation document.
Click here to read the entire pre-Budget recommendation document, on Nasscom’s Website.