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The Indian technology and start-up sector continues its growth trajectory to become one of the leading global epicentres for tech innovation and entrepreneurial spirit and a digital powerhouse for the world.
The government has done a lot in the areas of digital payments, digital commerce, data protection & privacy, cybersecurity and digital infrastructure initiatives, and, of course, AI, the new tech frontier.
The government has emphasised promoting AI in India through initiatives like 'AI for All' by Niti Ayog and upcoming plans such as IndiaAI, Bhasini Programme, and YuvAI, which will build the foundation for AI adoption in various sectors and areas of our work.
We expect the budget to provide further impetus and direction for AI opportunities for businesses and citizens while creating a “safe and trust” environment. Some of the key areas of focus that the budget should cover are listed down:
Data privacy and associated risks have been a matter of discussion and concern for all ecosystem players, including Indian citizens. There is keen anticipation for clear and comprehensive guidelines and implementation plans covering the recently introduced Data Protection Law, Digital Personal Data Protection (DPDP) Act, 2023.
With the notable surge in cyberattacks in India and businesses reinforcing their cyber strategies, coupled with an anticipated increase in cybersecurity spendings for 2024, expectations are high for a substantial government allocation for cybersecurity, with heightened focus on enhancing cybersecurity infrastructure, capabilities and talent pool.
It's imperative to educate Indian businesses and government entities about cyber risks while providing access to cutting-edge cybersecurity solutions and highly skilled professionals. The anticipation also includes government allocations for educational and training initiatives in the cybersecurity domain.
The expectation is for a strategic focus on substantial investments in digital infrastructure to ensure robust nationwide connectivity. Prioritising high-speed internet, advancing smart city initiatives, facilitating seamless digital transactions and promoting digital literacy are essential elements for nurturing a resilient and inclusive digital ecosystem.
India has the potential to become a global hub for semiconductor and electronic manufacturing. The industry expects government support through production linked incentive schemes and additional incentives for companies operating in this sector.
Taxation
Furthermore, the industry looks to have get a more streamlined and user-friendly regulatory/ compliance environment while incentivising growth and innovation.
Here are the top three key asks the Tech and start-up sector has from this Interim Union Budget 2024:
Extending the Concessional tax regime of 15%: Currently, section 115BAB of the Indian Income Tax Act, which offers the option to opt for concessional tax rate of 15%, is available for new domestic manufacturing companies (which specifically excludes developers of computer software) but has a sunset date of 31 March 2024. This means that a manufacturing company should have got established and started its manufacturing on or before 31 March 2024.
There are two asks from the industry:
Just these two moves can prove to be a game-changer for Indian economy towards its path to a 5 trillion Dollar economy.
Excluding TCS applicability for remittances under Employee stock incentive/ option plans: The RBI has prescribed regulations to permit resident individuals to remit up to USD 2,50,000 in a financial year under the Liberalised Remittance Scheme (LRS) outside India for any permissible transaction, including acquisition of shares of a foreign company.
While this limit is sufficient for the time being, such foreign outward remittances under LRS attract the provisions of Tax Collection at Source (TCS). Further this tax is as high as 20%.
Any amount remitted towards acquiring a share of a foreign company under an ESOP plan offered by the foreign parent by employees of the Indian entity are covered within the mischief of TCS, thereby attracting an unnecessary tax of 20%. While this tax is available to be set off against the employees’ final tax liability in India, considering employees do not have any other mode of income and their salaries are already subjected to TDS by the employer, this additional burden of 20% is significant.
The TCS also significantly affects employees’ cash flows, as they now have to factor the additional 20% tax, thereby reducing the number of stocks they can exercise/purchase in each ESOP purchase cycle. The refund of TCS upon filing their income tax return has a time gap, resulting in a loss of optimum utilisation of the benefits that are otherwise offered by stock incentive plans.
Given that the technology and start-up sector is a skill-based and people-centric sector, often Incentivising its employees through stock incentive plans, it would be a welcome move to exclude such remittances by employees from the purview of TCS.
Extending employment-linked weighted deduction to employees earning more than 25000 per month: Presently, an employment-linked income-tax deduction equal to 30% of additional employee cost for 3 consecutive years is available to corporates only if the total emoluments paid to an employee does not exceed INR 25,000 / month.
It is noted that the IT / ITeS industry demands technically skilled manpower (white-collar jobs) to carry on its operations even at its most operational level. Hence, the monthly emolument of INR 25,000 is discouraging, as most of these skilled employees are expected and receive a higher pay when compared to the average remunerations of a traditional / manufacturing business’ employee.
It is expected that Incentivising businesses to employ skilled workforce by increasing the monthly payments eligible for this deduction from the present 25,000 to 50,000 will boost the hiring rate in the IT/ITeS sector and enhance the overall performance of the IT/ITeS industry.
Apart from the above, there are other expectations, such as moving towards allowing the direct overseas listing of Indian companies. While the government has been encouraging GIFT City as a location for listing, further guidelines, and specifications, including direct overseas listing, would be welcome. This could provide an impetus and option for many tech start-ups and unicorns to tap global capital markets.
The Honorable Finance Minister has an enviable task to balance these goals in this interim budget while keeping the plan of moving towards a strong Digital Bharat and Amrit Kaal for the country.
