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The technology industry hopes the forthcoming Union Budget would simplify rules on the taxation front to ensure ease of business and give a thrust to advanced technologies such as AI.

The $250-billion technology industry in India primarily consists of information technology (IT) services companies and business process management firms, along with R&D focused organisations.

The National Association of Software and Service Companies (Nasscom), the body representing India’s technology industry, said, “Improve the tax competitiveness of the transfer pricing regime to boost India’s IT services exports and improve ease of doing business for global capability centres (GCCs).”

Global capability centres

Nasscom highlighted the importance of GCCs in its Budget recommendation. GCCs are primarily the technology subsidiaries of multinational companies and are emerging as an integral part of the growth of the IT industry in India.

As of FY2023, India had over 1580 GCCs; several centres get added every quarter. They are driven by the talent pool available in the country, and, in turn, this leads to the growth of the industry. There is a strong belief that simplification of tax regulations will spur more overseas investments into India’s technology sector.

Transfer price regime

Transfer price regime is a mechanism that enables companies to take advantage of different tax structures in various countries. However, this regime has also resulted in several disputes with tax authorities, especially with regard to companies that have global operations.

Nasscom has sought a hike in the limit of the safe harbour regime under transfer pricing for technology companies–from the current level of Rs 250 crore to Rs 2,000 crore. Under the safe harbour regime, the tax filings provided by companies are accepted by the authorities and do not come under scrutiny.

Emerging technologies

Meanwhile, there are several changes happening in the technology industry with a strong focus on game-changing technologies such as artificial intelligence (AI) and generative AI (GenAI). The sector hopes the Union Budget would come out with measures that would encourage further investments in these technology areas.

NetApp India MD Puneet Gupta said, “The transformative AI initiatives announced by Finance Minister Nirmala Sitharaman in last year’s Union Budget have firmly positioned India on the global technology map. As we approach Union Budget 2024-25, we eagerly anticipate continued investments in AI and technology infrastructure, further boosting the country’s global standing in the deeptech sector.”

He is of the view that focusing on advanced data governance and intelligent data systems will be crucial to safeguard data–a foundational factor to build new systems–which will strengthen advancements in AI.

The government has already allocated over Rs 10,000 crore for the national level AI mission, which aims to build an ecosystem around AI to encourage innovators and expand the talent base needed for this technology. This would work under the framework of public private partnership.

Industry observers believe India has the opportunity to become one of the leading hubs of advanced technology, given the legacy of the tech industry here.

Shree Parthasarathy, Partner–Digital, Trust and Transformation, Forvis Mazars in India, said, “It is crucial for the government to prioritise the adoption of AI and advanced technologies to drive innovation and economic growth.”

“Increased investment in AI research and development will not only position India as a global leader in technology but also spur job creation and enhance productivity across various sectors,” he added.

The industry is also expecting the Budget to provide investment support in digital infrastructure technologies and tax incentives, which could lead to the establishment of advanced centres of excellence to drive innovation in R&D.

Support for cybersecurity providers

Alongside advanced technologies, there is the challenge of cyber threats given the pace of digitisation.

Rajarshi Bhattacharyya, Co-Founder, ProcessIT Global, said with cybersecurity being one of the biggest risks that the industry faces today, it is crucial to encourage and incentivise both private and public enterprises to invest more in cybersecurity technologies.

“To achieve this, we need the government to support cybersecurity service providers with accessible loans and tax incentives which will boost overall investment in this critical domain,” he said.

Overall, the industry expects the Budget to ease the strain of the current taxation regime, while also being futuristic to encourage investments in the deeptech segment.