Article: Budget 2022: expectations of the IT/ITeS sector

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Budget 2022: expectations of the IT/ITeS sector

From supporting employees with innovative tax breaks to investing in upcoming technologies, we take a look at the IT/ITES sector’s expectations from the budget.
Budget 2022: expectations of the IT/ITeS sector

The IT/ITeS sector has always been a key pillar of growth within the Indian economy. While the pandemic has impacted sectors across the board, the Indian IT sector over the last few years witnessed steady growth. In its latest report on the state of the IT industry, NASSCOM said that despite a global pandemic and initial uncertainty, the industry registered an overall growth of 2.3 percent with revenues growing from $190bn last year to $194 bn this year. A hub for digital talent, the sector today employs an estimated 4.5 million people across the country. 

With the budget right around the corner, the IT sector has specific expectations that it hopes are a part of the government’s announcement on the 1st of February.

Support for the changing nature of work

The post-pandemic business world is increasingly hybrid when it comes to how jobs are structured. This is especially true in the case of the IT sector where jobs are increasingly shifting to a remote model. Many industry leaders hope the budget offers tax benefits that help employees tackle the increased cost of shifting to a work-from-home environment. 

“Many new employees might have to incur additional costs on WFH infrastructure such as furniture, increased electricity bills, internet, even rent for extra space, etc. The government can consider any spending on WFH set to be exempted from tax,” says Prasad Reddy, Associate Vice-President PreludeSys, highlighting how newer criteria for tax exemptions will “also help the fresh recruits who have become part of the workforce.” 

Echoing a similar concern, Ramamoorthy Rajagopal, Director of Finance at Tesco Business Services notes that the new hybrid way of work has made certain tax structures outdated. “Professional tax,” he notes, “remains a legacy from the past, and given the hybrid ways of working can result in conflicts, the budget can either eliminate this or include it within the Income-tax.” Others hope that changes within the GST model are made to tackle the uncertainty that new strains of Covid are creating in the market.  “Given the state of work due to Omicron,” adds Uthaman Bakthikrishnan, Executive Director of ClearTouch, “ a straightforward GST rate structure and simplification of GST compliances would be beneficial for players. I believe this budget would do well to reduce the penalties imposed on non-compliance to Advanced Tax and GST payments.”

Help employees gain further benefits

With employees facing the major brunt of the pandemic, leaders in the IT sector hope that the budget provides them with better ways to earn and save money. To this end, Ramamoorthy adds that  “the budget should tie the exemption limits (standard deductions like 80C) to the inflation rate. This will ensure that employees get the maximum increase in their hands, which in turn will help drive economic growth.”

By looking at tax deductions on the medical expenses incurred, Prasad Reddy hopes that the government would consider increasing the Section 80D deduction limit for medical insurance premiums paid and health check-ups. “Now is the right time for re-visiting the income tax slabs as it will give dual benefits of employees having more money at hand and in turn more spend power which will help in propelling the economy,” he adds explaining his expectations from the budget.

In addition to monetary benefits that help safeguard employee benefits, senior leaders in the IT sector also hope the budget addresses the skilling requirement. “To keep up with the rapid adoption of digital technologies, organizations must make significant investments in skilling, reskilling, and upskilling programs to bridge workforce and industry gaps,” explains Arun Balasubramanian, MD, India & SAARC, ServiceNow, adding that the “Ministries of Education, Skill Development, and Entrepreneurship should collaborate on the 2022 budget to advance the Skill India initiative by modernizing skill development programs to meet industry demand.”

Increase investments in new-age technology

The union budget provides a vital means of creating an impetus for investments to be channelized into newer areas of growth. Leaders across the sector are hopeful that the coming budget speech does the same for new-age technologies like 5G and AI. It will enable the sector to leverage its growing demand abroad and build on the digital growth the sector has witnessed in the past few years. “The data center market in India has seen significant growth. India's digital push and exponential data growth in the last two years have resulted in strong demand for digital infrastructure. There have already been estimates that the Indian data center industry will surpass USD 8 billion by 2026,” notes  Manoj Paul, Managing Director, Equinix India, adding that this anticipated growth would only happen in case of “favorable policy incentives and support from the Union government.”

Speaking on the importance of creating better avenues to invest in new-age technologies, he adds, “policy interventions are required to increase the level of investment in next-generation technologies, including artificial intelligence, machine learning, robotics, etc.” 

Reflecting on the rise of digitalization, Rajesh Murthy, Vice President at Intellicus, adds that the “government should further encourage digitization of companies and 100 percent made-in-India software products. At present, the GST with the full input tax credit is 18 percent for all software products produced and sold in India. We expect this rate must be tapered down to support indigenous creators of software IP in India.”

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Topics: Technology, #Budget2022

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