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Budget 2021: India Needs Technology-Friendly Tax Policy, Says Deloitte India

India can improve its share within the knowledge centre market with the required coverage assist and incentives.

India’s digital push and exponential knowledge development have resulted in sturdy demand for digital infrastructure and the know-how trade has sturdy expectations from the Union funds to be introduced by finance minister Nirmala Sitharaman on February 1. The Union authorities can look to raise digital infrastructure as a strategic precedence, says Deloitte India. India can improve its share within the knowledge centre market with the required coverage assist and incentives for its improvement.

P N Sudarshan, associate, chief – Technology, Deloitte India, says, “Technology industry has shown tremendous resilience in the last year in adapting to the new normal. The Covid-19 pandemic has catalysed technology and digital adoption across sectors, and also pushed enterprises to embrace fully distributed workforce and remote work models in a rather short time. On the consumer side, there has been a behavioural shift to adopt digital channels for high velocity everyday purchases, and also for high involvement services like education and healthcare.”

“It must also be noted that technology sector has a multiplier effect on the broader economy,” he provides.

•       India is seeing excessive development section in knowledge centre and telecom market that contain heavy funding in capital expenditure (capex). Incentivising home manufacturing for info know-how (IT) and telecom gear can scale back our imports, whereas additionally growing the broader electronics manufacturing ecosystem, provides Deloitte India.

•       India has emerged as a worldwide analysis and improvement (R&D) vacation spot, with over 1,140 R&D centres of multinational firms (MNCs). Incentivising R&D in applied sciences reminiscent of synthetic intelligence (AI), machine studying (ML) and Blockchain might assist leverage India’s area of interest and cost-effective science and engineering expertise to construct its strategic capabilities in core scientific and industrial analysis.

India additionally must have a technology-friendly tax coverage. With a fast-growing digital financial system, there’s a sturdy want to handle points round digital taxation, says Deloitte India.

•       Under the bottom erosion and revenue shifting (BEPS) initiative, the Organisation for Economic Co-operation and Development (OECD) agreed to develop consensus-based answer to deal with the difficulty of non-taxation of income within the absence of bodily presence. Some of the lately launched taxes/ levies by the Indian authorities, being an offshoot of BEPS initiative, are Equalisation Levy (EQL) and Significant Economic Presence (SEP):


•       The newly launched EQL provisions have numerous ambiguities related to them, reminiscent of availability of tax credit score of EQL within the residence nation, scope of the time period “digital facility,” applicability of EQL on intra-group companies, dichotomy between the date of applicability of provisions and date of applicability of exemption provisions, amongst different issues. The authorities ought to provide you with clarifications to dispel these ambiguities.

•       SEP provisions, relevant from April 1, 2021, have evident overlap with withholding tax and EQL provisions. The authorities ought to both additional defer applicability of SEP or present clarifications on the anticipated interaction between these provisions and in addition notify the thresholds for applicability of the provisions.

•       Cloud-based transactions are primarily within the nature of ‘companies’ and ordinarily don’t enable the person any proper to the infrastructure. However, applicability of tax deducted at supply (TDS) on cloud funds has emerged as a hotbed of litigation, with the tax authorities treating funds for cloud companies as ‘royalty/FTS.’ The authorities ought to present crucial clarification on this difficulty.

•       E-commerce gamers incur heavy Accelerated Mobile Pages (AMP) expenditure for selling their merchandise. These bills are being handled by the tax authorities as ‘capital’ in nature, regardless that the advantages of such bills are short-lived. The authorities ought to present crucial clarification on the tax remedy of AMP expenditure.

•       The most important goal of Arm’s Length Price (ALP) ideas underneath customs and switch pricing legal guidelines is to make sure that taxable values on which taxes are levied are appropriate. Different ALPs being adopted as per customs and switch pricing legal guidelines creates plenty of ambiguities with respect to the valuation leading to litigation. This provides rise to a necessity for mechanism that would supply ALP that’s acceptable underneath each customs legislation and switch pricing, to eradicate ongoing disputes on the problems.

•       Refund of products and companies (GST) paid on capital items utilized in export/zero-rated provides is presently not accessible. Capital items type a big a part of funding for companies and limiting refunds results in money crunch, in accordance with Deloitte India. Hence, refund of enter tax credit score on capital items must be permitted.

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