New and emerging companies may no longer have to pay a fortune for procuring the latest in technology from overseas markets.
The government has proposed to reduce the income tax on royalty and fees paid for technical services to 10 per cent from 25 per cent.
“Today, I see a lot of young entrepreneurs running business ventures or wanting to start new ones. They need latest technology. Therefore, to facilitate technology inflow to small businesses at low costs, I propose to reduce the rate of income tax on royalty and fees for technical services…,” Finance Minister Arun Jaitley said.
Whenever Indian firms procure technology (packaged software, applications and other technical know-how) from abroad, a withholding tax of 25 per cent is applicable.
Speaking to BusinessLine, Maulik Doshi, Partner at accountancy firm Sudit K Parekh and Co, said: “Foreign companies expect their Indian counterparts to bear the tax burden in such cases. “This move will straight away ease the tax burden on our firms by 15 percentage points,” he added.
Rodney Noonoo, Chief Financial Officer of Xerox India, said: “Reduction of tax on royalty and technical fee will complement the efforts of improving investor sentiment and making India the next business destination.”
The initiative will also result in deeper engagements between Indian firms and their overseas suppliers.
“Reduction in withholding tax rate is likely to encourage tech start-ups and facilitate technology transfer to India,” said Sandeep Ladda, India Technology leader, PwC. Technology transfer refers to the assignment of intellectual property, developed and generated in one place, to another through legal means such as licensing or franchising.
Start-ups that play in emerging areas such as social media analytics and cloud, Internet of Things and Machine-to-Machine communication are expected to benefit the most from the new proposal. As per the Economic Survey 2014-15, India ranks as the fourth largest start-up hub in the world, housing over 3,100 start-ups in the country.