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Tax breaks for small Indian IT companies


Siddharth Sethi

February 07, 2008

There was a news article in the Economic Times recently that the government is thinking of extending the tax break to the small and medium IT companies to help them against the rising Indian rupee and the possible (read certain) recession in the US economy.

Many small Indian IT companies would be cheering about this move and InfoBeans (I own 33.3% of this company) would probably be no exception. I certainly do not mind my company doing better after all

The question that I ask myself constantly is – better how? Operationally better or better through extraneous intervention? There are some conflicting thoughts here.

  • There will be a time when this subsidy (it is a subsidy after all) will stop. The proposed change will extend this for another three years. What after that?
  • There will always be some section of the industry that will fall under small and medium. Does that mean those companies will always be sheltered?
  • The companies that are on the threshold of transitioning from SME to large will probably weight their options now in terms of reporting revenue – should they save the extra money and not show the extra revenue (not sure how much of that is really possible, but anything can happen in the accounting books) or should they pay up the extra tax and become large?

I want my company to increase its efficiency in all it does. I do not want to depend on the government largess of tax rebates. I have happily used them in the past, but I think the industry is now mature enough that there is really no more reason for the government to help me out. Lower taxes for the entire industry is good, lower taxes for a small segment of businesses does not look good. It makes me look like a child whose father is trying to help take first steps even after he has learned his first steps.

I am sitting on a dilemma here. What turns out to be a short term positive development for my company, does not really seem a positive development in the overall scheme of things.

I want help from the government, but nothing specific to my industry type. I want better roads, constant power availability and a solid communication system for all. Not a tax break.

Government of India, tax everyone, not just a section. I will happily pay up.

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