Top 4 announcements in Union Budget 2018 for the technology sector

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Last and full union budget of Modi government is finally out. Presented by the Finance Minister Arun Jaitley, the Union Budget 2018 focuses on Government’s commitment to leverage digitalization & technology for India’s development strategy across multiple sectors- education, law, railways and more.

It focuses on certain key initiatives that will help India in its transition to a digital economy and progress in areas of emerging technologies, globally. It highlights the needs for technology solutions to address different issues and the necessity of deploying them across many verticals – leaving ball in the court of startups and IT industry to make use of the emerging opportunities, intelligently.

Proposals like 25% income tax for companies with the annual turnover up to INR 250 crore, use of blockchain technology for digital payments, use of digital technology in the education sector, e-courts, web-based Government Integrated Financial Management Information System, etc.  are some of the notable steps that will ensure security, faster growth and will give boost to the cloud-based and Internet-enabled businesses.

Indian Budget highlights 2018 – significant announcements and impacts on the technology sector

1. Boost to Digital India Vision and opportunities for the technology sector

Giving a further push to the Digital India Vision, finance minister Arjun Jaitley has doubled the allocation towards this initiative to Rs 3,073 crore in the Union Budget 2018.

This massive budgetary allocation to Digital India Initiative is expected to give a boost to research, training and skilling in consistently growing artificial intelligence (AI), machine learning and blockchain technologies which will be used for governance and development in multiple sectors- education, health and agriculture.

Jaitley announced, “To invest in research training, and skilling in robotics, 5G, AI, digital manufacturing, big data intelligence, quantum communications and art of the things, the DST will launch a mission on cyber space in support of establishment of centre of excellence. I have doubled their allocation on the digital India program to Rs 3,073 crore in 2018-19,”

He also said that to set up a centre of excellence, the Department of Science and Technology will start a mission on cybersecurity and that Niti Ayog is working on a strategy paper for blockchain in India which will outline use cases as well as map out the schemes of Government of India that stand to benefit from the utilization of the technology.

2.Opportunities for Startups – favorable environments and hybrid instruments

Union budget 2018 extends Startup India scheme to the startups that will be set up till March 2021. Eligible business criteria for being a startup will now include businesses with high potential of employment generation and wealth creation.

This is although a welcome move, but as proposed, startups will need Inter-Ministerial Board (IMB) certification to qualify for the 100 % tax holiday and avail the benefits as done by many start-ups.

Government is planning to develop a separate policy for issuance of hybrid instruments to attract foreign investments in several areas, especially for the start-ups and venture capital firms.

 FM announced, “We have taken a number of policy measures including the launch of Start-Up India program, building very robust alternative investment regime in the country and rolling out a taxation regime designed for the special nature of the VCFs and the angel investors.”

Here are the direct tax proposals:

Image Source: NASSCOM

3.Taxable digital presence of NRIs – concept of ‘Business Connection’ widened

Government has toughened the existing ‘Business Connection’ rule. As per existing provisions, any person can conclude contracts on behalf of a non-resident to constitute a taxable presence in India i.e. a business connection. This helped many enterprises to organize their global operations in a manner that minimized tax payouts.

But, under the revised definition of ‘Business Connection’(BC) as proposed in the Finance Bill 2018 – ‘Significant Economic Presence’ (SEP) of a non-resident in India to constitute BC in India irrespective of non-resident not having a physical presence, residence or place of business in India”.

 Therefore, the budget 2018 proposes that a non-resident organization will be liable for tax payment even if it has no physical presence in India but has sustained business activities, transactions or interactions with the Indian economy using automated or digital means or tools.

This rule is expected to impact cloud or internet-enabled businesses, significantly.

Image Source: NASSCOM

4. Cryptocurrency is invalid in India

Maintaining an early stance, Arun Jaitley announced that cryptocurrencies are not a legal tender in India to exchange them for goods and services and the government is making effort to eliminate their use from the payment system. However, the government is focusing on the use of blockchain technology to facilitate digital payments.

Further, in another announcement, he proposed that the Ministry of Finance is working on policy measures and is creating an institutional mechanism that will help in the growth of fintech companies.

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