The budget was largely neutral for the information technology (IT) sector. The finance minister didn’t extend the tax relief offered to units operating in software technology parks, but this was largely expected. In fact, large IT companies have been working at shifting work to special economic zones (SEZs) for some time now. Midsize companies, however, haven’t planned and worked towards the transition as well and will be affected to a larger extent.
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No doubt, the tax rates for all software companies will increase. But this was already factored by the markets. So was the incidence of minimum alternate tax on units operating in SEZs. Analysts had already factored this into their estimates for IT companies. As a result, the budget hasn’t provided any reason to tinker with earnings estimates.
At another level, the industry is benefiting from increased demand in its main markets such as North America, but high attrition and rising employee costs remain a concern.
Graphic by Yogesh Kumar/Mint