Small and medium enterprises (SMEs) may soon become investment hot spots in the IT segment. The department of information technology (DIT) has recommended a slew of measures, including fiscal incentives, to encourage growth and development of SMEs.

To encourage SMEs to create their own products, the department of information technology has suggested tax depreciation and credits for investments made towards developing intellectual property (IP) by SMEs. The department has stated that IPs developed by SMEs in particular be encouraged in e-governance projects.

In a move to boost growth of SMEs, the department of information technology has recommended that companies with a turnover of over Rs 100 crore be offered tax benefits on costs incurred for goods and services procured from domestic SMEs through a subcontract model.

To further growth in the SME sector, it has been suggested that tax deductions of up to 20% of the taxable income be provided to all IT-ITeS professionals working with SME companies for a minimum period of two years.

With a view to popularise seed funding in SME start-ups, the department of information technology has recommended setting up of a fund that insures a certain percentage of the seed-funders investment.

To facilitate industrial or market application of research, the department suggests that fiscal incentives in the form of a set-off against taxable income be given to individuals who invest in start-ups that provide a commercial output to work done by research institutions.