by Vishal Chawla

Budget 2018: The big expectations of the IT sector

Jan 29, 2018
AnalyticsArtificial IntelligenceBudgeting

Among the key announcements in the forthcoming Union Budget of India, allowance for tech infrastructure and data security remain the most crucial for the IT sector.n

The Indian tech sector has big expectations from the upcoming financial budget of 2018, including announcements that will assist in furthering the growth of IT. This past year brought multiple advancements in technology services sector, with fast growing use of digital payments, artificial intelligence, cloud and analytics. Budgetary allowance for digital payments, IT tax regulations, data security and privacy-related issues are expected to be the major highlights for tech industry in the coming budget.

Tax incentives and exemptions for IT

Even though 2017 saw major IT advancements, the access to digital services is still poor for the majority of Indians. To strengthen the nation’s digital infrastructure and incentivize IT, it is expected that the government may announce tax rebates and exemptions. Steps such as reducing digital payment transaction fees, and giving tax exemptions to R&D for IT may be announced by the Finance Minister to accelerate the trend initiated by the government with the introduction of demonetization, GST regime, and cashless ecosystem. It is also proposed that GST taxpayers will get a benefit of a 2 percent relief if they use digital payment to file their returns.

Creating a tech ecosystem

For creating a tech ecosystem, it is expected that the union budget will bring in provisions to incentivize IT research and startups. Experts have urged strongly to extend weighted deduction under section 35 (2AB) of the budget for R&D activities to companies engaged in development and sale of software or providing IT services, including start-ups.

Similarly, the provision of angel tax introduced in the 2012 budget, considered to disincentivize the Indian startup ecosystem is expected to be modified, if not completely scrapped. In the same context, it is estimated that government’s programs like Digital India, Make in India, and StartUp India, will receive increased allocation in the budget. 

Pre-budget IT expectations

Increased spending on IT-related government programs IT tax incentives and exemptions  Strengthening the digital payments infrastructure Incentivizing the startup ecosystem Increased allocation on data protection and privacy compliance Tax regulation for digital currencies

Concerns related to data privacy and security

While UPI, India Stack, eKYC, and Aadhar have proven to be great tech advancements in the push towards Digital India, concerns related to data security and privacy have not been met.

To further incentivize the digital payments infrastructure and ensure greater digital adoption in 2018, the Union budget is expected to allocate funds to address such concerns. As a result, with emphasis on privacy data regulation, increased spending in cyber security products and data compliance services is predicted to get a boost.

Payments Infrastructure

The Indian digital payments industry is projected to reach USD 500 billion by 2020, contributing 15 percent to India’s GDP, as per a recent report by Google and Boston Consulting Group. To push India towards becoming a truly cashless economy, there may be announcements as to reduce charges on digital transactions in India.

Also, with the high influx of multiple digital payments banking platforms, government is expected to announce specific laws, protocols and taxes related to the payment infrastructure. Regulation as recommended by Ratan Watal Committee may be defined under the budget and enforced.

Another major anticipated announcement closely related to the payments market is regarding the regulation of cryptocurrencies. This will be centered around tax collection on crypto currency gains as well as rules to prevent financial fraud in the market. It is yet unclear whether the Finance ministry recognizes cryptocurrencies as commodities or as units of exchange, which impacts the type of tax to be levied.