Boost for start-ups: Tax on royalty paid for tech services cut

The government today proposed reducing the income tax on royalty fee paid for technical services, which analysts said will not only help start-ups and small firms but will also facilitate technology transfer in the country.

Finance Minister Arun Jaitley in his Budget proposals reduced the income tax on royal fees paid for technical services from 25 per cent to 10 per cent.

“Today I see a lot of entrepreneurs running businesses, ventures and wanting to start new ones. They need latest technologies, therefore to facilitate technology in-flow in to the businesses at low cost.

“I propose to reduce the rate of Income Tax on Royalty Fees for Technical Services from 25 per cent to 10 per cent,” he said presenting the Budget for 2015-16.”

Analysts welcomed the move to cut tax on royalty fees, saying it will also incentivise foreign technology firms to provide more benefits to their Indian clients and can also encourage them to invest in the country.

“The proposal to reduce taxes on technical services from 25 per cent to 10 per cent with the aim of encouraging tech start-ups is a welcome announcement and will help facilitate technology transfer to India,” consultancy firm PwC India Technology leader Sandeep Ladda told PTI.

The move eases the process of doing business for IT start-ups, helping breed a new stream of IT companies in
emerging technologies such as SMAC, IoT, etc, he added.

Advisory services firm BMR & Associates Partner Mahesh Jaising said the step is a welcome move.

“This reduction will help small firms especially in the technology sector,” he added.

It will also encourage foreign firms, who provide various technical services to these small firms and start ups, to invest in the country, Jaising said.

India has emerged as the world’s fourth largest hub for start-ups with over 3,100 of them, driven by “hyper growth” in technology and software products in the country, as per the Economic Survey 2014-15.