Budget 2016: New tax rules to boost value addition in IT, telecom production

NEW DELHI: With focus on Make in India, the government has announced steps, including tax on imported accessories such as mobile chargers and phone motherboards, which experts say will take IT hardware sector from assembling products to manufacturing with higher value addition.

While presenting the Budget for 2016-17, finance minister Arun Jaitley said suitable changes are proposed to be made in customs and excise duty rates on certain inputs, raw materials, intermediaries and components and certain other goods.

This will "reduce costs and improve competitiveness of domestic industry in sectors" like IT hardware, capital goods, defence production and textiles among others, he said.

The Budget proposes to withdraw Basic Customs Duty (BCD) (10%) and Countervailing duties (CVD) (12.5%) exemptions on imports of chargers, adaptors, battery, wired headsets and speakers used in mobile phones.

The Budget also waived basic custom duty and special additional duty (SAD) for machinery and equipment that will be used for making electronic chips or semiconductor in India.




Also, the minister announced 10% tax on income from worldwide exploitation of patents developed and registered in India.

"Government has imposed duty on products like chargers, battery used with mobile phones and waived duty on components used to make them. This makes strong case for making them in India. Those who will import them will need to pay 12.5 excise duty and domestic makers will have to pay 2%," Indian Cellular Association national president Pankaj Mohindroo said.

He said that around 29% tax will be levied on components that will be imported.

With a view to move towards value added manufacturing of mobile phones and computers, the government announced special additional duty of 2% and 4%, respectively, on circuit boards used in manufacturing.


"This will make mobile handset expensive by 1%. We will request government to reconsider it," Mohindroo said.

MAIT senior vice president Nitin Kunkolienker said the duty on PCBs for personal computers will have a minimal impact and it may encourage some players to buy these inputs locally.

He also said that the change in duty structure will encourage manufacturing of consumer premise equipment like modems, routers, digital video recorder, STB for internet, IP camera. "We expect investment of about Rs 10,000 crore for their local production."

"I expect their prices will go down by 8% in first year and by 10% in one and half year," he added.