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Should we stop the tax breaks for IT industry?

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IT industry in India has enjoyed its honeymoon. In fact it is going beyond its honeymoon of tax holidays. The export revenues of software firms are tax-exempt. If not renewed this will come to an end this fiscal.

Nasscom has requested the finance minister to extend this to overcome the current recession. tax

“It is imperative that the government announces an extension of fiscal benefits under section 10 (A) and (B) to mitigate the impact of recession and protectionist measures being adopted globally…  (Source)

I empathize with the industry, as I am one of them. But, if I put on a different hat and think about it, may be the IT industry is overstaying the tax holiday.

IT in India has evolved beyond any reasonable doubt that it can sustain without any holidays. There are too many companies, which are coming up without any help from the government, and ecosystem is all built. It might not be a silicon valley but it is not far behind. It might not be a matured industry yet but it is getting there.

So, are the tax breaks still justifiable? My answer is no. They are not justifiable whether it is recession or not. There is no doubt that government needs money. Now, if these tax breaks are removed then there will be more money with the government, which can be used for other, needy industries.

There is a lurking feeling that the tax breaks should be given to some other industry other than IT. But, I couldn’t find any other industry, which do not have some kind of incentive. I thought the clean tech industry is a good bet but apparently they have their own breaks and I quit.

Would it be a mistake if we pull out the tax breaks from IT?

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  1. Prats says

    Well I don’t think the Tax Breaks should be extended for the IT industry.

    Even I am from the IT Industry if we look at the IT growth in India I find these features which think that now they should be on their own-

    1- The tax breaks are for the growth of an Industry and its development. Right now the size and the revenue of the Industry is fairly large to be applicable for the Tax Breaks.

    2- The Industry has been getting tax breaks for so many years and their prime focus has been to get the lower pie of the work, use the cost advantage of lower Indian costs (Cheap Labor, Tax Breaks, Dollar Rupee difference and standard of living) and the focus of all majors have been to increase the width instead of getting to higher chunks and premium services.

    3- Essentially the so called consulting arms (IT services) of the Indian IT are flooded with Western Talent.

    4- There have been exploitation of the talent resources by these company in terms of resources (read fresh graduates from the engg colleges) by inducing the shortfall in the core Industry.

    So the money which should be with the Tax payers is being utilized where? why a break should be provided to these Industries?

    For any exemption they get should be because of a present or future give back to the country. The tax break was justified as these IT companies played a major role in Showcasing India to the world and also create a middle class populations in India.

    There is no reason that these tax breaks should be extended to these companies for the same purpose as they are kind of already achieved. We need to identify new purposes of tax breaks and support other industries/causes by alligning our tax breaks accordingly

    1. Arun Prabhudesai says

      Hey Prateek,
      Thanks for dropping by – good to see your comment on the blog :) All the 4 points you have mentioned are very valid and seconded by me. The size, growth and revenue currently are decent enough for avoiding tax breaks – simple & sweet :)

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