Budget: No cheer for the IT sector

The 2011-12 Budget has failed to bring cheer to the Indian IT sector as Finance Minister Pranab Mukherjee did not make any major announcements to boost the segment.

IT companies were batting for reduced tax rates and continuation of sops under the STPI to help the industry, which is seeing a recovery in demand after almost two years of slowdown.

"I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 18 per cent to 18.5 per cent of book profits," Finance Minister Pranab Mukherjee said on Monday during his presentation of the Budget 2011-12. However, the Software Technology Parks of India (STPI) scheme was not extended.

STPI, which offers tax exemption to export oriented units on profits under Section 10A and Section 10B of the Income Tax Act, was extended by one year till March 2011 in the Budget last year.

Tata Consultancy Services Chief Financial Officer and Executive Director S Mahalingam agreed.

"Overall, it is a good Budget, but the FM could have given more focus on the IT sector. There is nothing new for the IT sector in the Budget proposal, apart from the reduction in the tax on revenues from foreign subsidiaries of the Indian companies," he said.

However, he added the proposals are "an excellent move" as they would boost the margins of large IT companies.

"It is disappointing that the Budget has not extended the STPI benefits, but it will not affect the sector to a great extent," he said.

Slow economic recovery in the US and European countries, pricing pressures in the domestic market and protectionist policies in the US are some of the issues the Indian IT players are facing. Industry analysts said the Budget will not have a major impact on the revenues of the companies.

"From the income tax side, the Union Budget is neutral. On the SEZ part, the development was unexpected. The corporate tax and MAT rate changes are marginal and might not impact the industry as such," Deloitte Partner Sunil Shah said.