Pre Budget Expectation Comment : Tally Solutions

 Tejas Goenka, Managing Director, Tally Solutions


With majority of the pandemic restrictions lifted and life getting back to normal, all eyes are the forthcoming union budget. Various sectors have high hopes from the budget to an extent that certain frameworks and inclusions will help them in recovering from the impact of the pandemic. Below mentioned sectors are the ones that should be given a considerable importance in the upcoming budget.


MSMEs have and will continue to be an important driver of the growth of our economy, playing an important role in the “Atmanirbhar Bharat” initiative. The budget must focus on improving accessibility to funding, encouraging adoption of digital payments and incentivizing investments in the MSME sector. The main challenge for this sector continues to be accessibility to funding at a reasonable cost as the sector continues to be significantly dependent on informal sources where the interest rates are exorbitant. The Government’s emphasis should be to bring the MSME sector into the formal lending process. On the backdrop of the steady increase in interest rates, an interest subvention scheme would be encouraging for MSMEs. It is also recommended that the threshold for collateral free loans be increased to from Rs 1 Crore to Rs 2 Crores. The act of incentivizing the investments that go into the MSME sector will further drive more investment towards these businesses. Together with schemes focused on employment generation the budget must provide support in the form of grants for skill development. To promote a system of greater trust and ease operations for MSMEs, compliances should be liberalized and simplified.

Software Product Industry

The Indian software industry has proven its ability to grow, transform and remain resilient even during challenging times. The sectors agility has enabled companies globally to work pretty much seamlessly during the pandemic and recover quickly. The pandemic created an irreversible shift where digital technologies have become an imperative across organizations and governments globally. This represents a unique opportunity for India to further accelerate growth and become the digital talent hub for the world.

In support of this, the Government should consider increasing the threshold of total emoluments for additional employees from Rs 25,000 to Rs 40,000 under Section 80JJAA. This will provide practical significance as majority of entry-level employees in software companies are being hired for monthly emoluments more than the threshold.

Previously an additional deduction was available under income tax for research and development spends but this was subsequently removed. The government should consider either re-introduction of additional deduction under income tax or to provide subsidies to software companies for encouraging new research and development activities. In addition, since software products are treated as goods, it is recommended that withholding tax rates are kept on par with sale of physical goods i.e., 0.1% to avoid blockage of working capital in the form of TDS and for overall development of the industry.

The big dilemma that still exists in the industry about using HSN or SAC code for software products must be addressed as most software products are being delivered virtually. It is imperative that the Government brings in clarity for software products delivered through various forms of virtual delivery.

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