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Overall impact: Positive

Positive features

1. Maximum investment of foreign institutional investors in Indian companies increased from 30 per cent to 40 per cent. This is expected to enhance valuations of Indian software companies even further.

2. The finance minister has announced that he plans to liberalise foreign acquisition norms further for Indian companies in knowledge-based sectors. This augurs well for Indian software companies which are keen to undertake overseas acquisitions.

3. Growth of venture capital has been promoted through the following steps:

• SEBI has been made the single point nodal agency for registration and regulation of both domestic and overseas venture capital funds. No approval of venture capital funds by tax authorities would be required.
• Principle of pass-through to be applied for the tax treatment of venture capital funds.
• Income in the hands of investors in venture capital funds continues to be tax-free.
• There will only be a one-time payment of income tax at 20 per cent by the venture capital fund at the time of distribution of income to the investors. The same rate would be applicable to income remaining undistributed by venture capital funds beyond specified time.

4. Customs duties on computer hardware have been reduced. This move is expected to increase computer penetration in India resulting in several spin-off benefits for the software industry.

Negative features
Tax concession on export earnings to be phased out over a period of five years. This will impact software companies adversely since exports form a major part of software companies.

ALSO SEE:

BUDGET IMPACT

The first cut

A matter of life and debt

On the MAT

How will your tax outgo change?

SECTOR IMPACT:

Automobiles | Banking | Cement | Cigarettes | Computer hardware
Fertilisers | Housing | Paper | Pharmaceuticals | Telecom | Tyres

PRELUDE TO THE BUDGET

What will Yashwant Sinha do?

How will personal taxes change?

Fiscal report card

PRE-BUDGET SECTOR ANALYSIS:

Automobiles | Cement | Cigarettes | Fertilisers | Hotels | Housing
Mutual funds | Paints | Paper | Petrochemicals | Pharmaceuticals
Power | Software | Steel | Tea and coffee

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