NASSCOM Recommends Incentivising R&D And Talent Development Investments Ahead Of Union Budget

The National Association of Software and Services Companies (NASSCOM), today announced its recommendations for the upcoming Union Budget to be tabled by the newly appointed Government in the forthcoming parliamentary session. These recommendations cover several areas that may help the Indian startup ecosystem as well.

With the industry accounting for over 6.6% of the nation’s GDP and employing over 4.1 Mn skilled individuals, it clear that it has a multiplier effect on India’s economy and promoting it is crucial to achieve the  $5 Tn GDP milestone by 2024.

The recommendations went on to state that India’s strength in IT-BPM services must be consolidated to establish a tax-friendly Special Economic Zone policy for the next 20 years which would help retain existing tax benefits as well as continue to generate employment while increasing foreign exchange earnings.

Incentivising R&D Based Investments

India’s Engineering, R&D market has grown to  $30 Bn in the financial year 2019 and is estimated to touch $42 Bn by 2022. While there has been a continued focus on encouraging IT adoption and allocation of funds across sectors like an Innovation fund for secondary education, currently there are no specific incentives for R&D for IT companies.

For this NASSCOM has said that measures to promote the creation of intellectual property in ER&D through incentivising investments in centres of global MNCs in India and nurturing 1000 technology spin-offs from the ER&D centres in India primarily through 3D printing can help generate direct and in-direct employment for 350,000 people by 2025.

Incentivising Talent Development And Skilling

Building on NASSCOM’s initiative to inculcate a well-equipped and future-ready workforce in the industry, they have recommended setting a budget of Rs. 500 crore for the financial year for co-funding talent development and re-skilling in IT services.

With a requirement to reskill 40% of the country’s 4 million strong IT workforce to cope with emerging technologies, it is recommended to incentivise firms by promoting expenditure on developing skills and training programs undertaken by the industry.

Grow India As a Technology Startup Hub

It has been recommended that investments be encouraged through Long Term Capital Gains from the sale of shares unlisted companies being made exempt from tax while Short Term Capital Gains being taxed at 15% instead of the current income tax slab of the individual.

Investors who invest in eligible start-ups with an intention of value accretion should be benefited with tax deductions, on the lines of Singapore and UK. Start-ups and SME’s with a turnover of less than INR 50 crores should also be exempted from MAT.

Ease taxation regime And Promote Ease Of Doing Business

There must be adequate clarity provided with respect to the Significant Economic Presence provisions. These should also be aligned with the proposed consensus of the G20 and Organisation for Economic Cooperation and Development. Tax credit of Equalisation Levy must also be extended and made available to foreign companies operating in the home country.

By reducing 18.5% rate of MAT for companies, especially those with a turnover of up to Rs 250 crore and clarifying that secondment of employees would not constitute a service PE for the foreign entity, would help businesses function more effectively. There must be clarity on tax treatment of compensation received on termination or modification of the terms of the contract.

Invest In E-waste Management

NASSCOM has recommended the introduction of a point-based reward system of e-waste recycling credits for formal organisations to incentivise them to channel their e-waste through government-approved recycling centres.

Co-funding incentives should also be provided to metropolitan city governments to set up new recycling units through public-private partnerships with large e-waste companies.

NITI Aayog, MeitY and the Central Pollution Control Board may also be involved for this stage for industrial consultations to devise a roadmap for a long-term solution for e-waste management.

NASSCOM has submitted an extensive recommendations document to the Government for their consideration.

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