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Budget Impact on Information Technology sector

Overall impact: Positive

Excise duty

  • No change in excise duty

Customs duty

  • Customs duty on IT products and their inputs and components have been reduced to 15% from current levels. The basic customs duty on word processing machines and printed circuit assemblies of word processing machines has been reduced from 20% to 15%
  • No change in basic customs duty rates of computers and computer peripherals (viz. 15%). However, removal of surcharge of 10% on basic customs duty has resulted in reduction of effective rate on these items from 40.55% to 38.74%.

  • The basic customs duty on static converters used in automatic data processing machines has been reduced from 20% to 15%

Other Changes

  • Profits derived by the units located in the software technology parks from the export of "on-site" services have been made eligible for deduction like their other export income. Units located outside these zones will also get the benefit of tax exemption on such export earnings.

  • Condition relating to transfer of ownership of companies in sections 10A and 10B of the Income-tax Act will not apply in respect of companies in which public is substantially interested. This will facilitate mergers and acquisition in the IT industry

  • Internet service providers and broadband networks who commence their operations on or before 31/03/03 will get five-year tax holiday and 30 % deduction for next five years retrospectively w.e.f from 01/04/00.
  • The limit up to which Foreign Institutional Investors (FIIs) can invest in a company under the portfolio investment route has been increased from 40 % of the paid up capital of the company to 49% of the paid up capital of the company. This is likely to have a positive impact on IT industry.
  • Indian companies wishing to invest abroad can now invest up to US $50 million on an annual basis through the automatic route without being subject to the three year profitability condition. This will help IT companies to further expand their overseas operations.
  • Indian companies that have issued ADRs/GDRs can now acquire shares of foreign companies up to an amount of US $100 million or an amount equivalent to ten times of their exports in a year, whichever is higher. IT companies having high export turnover are likely to benefit from this measure.

  • In case of Export Oriented Units, and units located in Export Processing Zones, Free Trade Zones and Software Technology Parks, profits from 25% of their sales in the domestic market, which is currently tax exempt, will now be taxed.

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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