Union Budget expectations from the telecom sector

The Indian telecoms sector – with supportive policies, robust investments in 5G infrastructure, increased mobile data usage and greater fixed broadband play – is gearing up for the next wave of growth. The sector’s adjusted gross revenue (AGR) grew 8.2% y-o-y in FY24, while for the quarter ending Sep-24, it grew 13.1% y-o-y. Throughout 2024, the Government of India has adopted progressive measures to help improve telecom operators’ financials. Now is the time to take it a notch further and accelerate the superlative transformation of the sector.

Regulatory levies and taxes in India continue to be one of the highest in the world. To alleviate the financial burden on operators, the current 8% license fee, including contributions to the Digital Bharat Nidhi, must be reduced. As is the practice in most of the countries, the license fee charged should cover only the administrative cost. Necessary corrections/measures are required to make the sector more attractive and profitable. The telecoms sector has been the backbone of the digital economy on which the entire start-up ecosystem has thrived. Currently, India is the 3rd largest start-up ecosystem globally, with home to approximately 118 unicorns. They rely on a robust digital infrastructure to innovate and solve real-life challenges for the people in India. Having access to high-speed broadband network (both fixed and wireless) is a prerequisite to further the digitization in the country. It would translate to greater socio-economic benefits.


On an average, the Indian telecoms sector has been incurring close to INR1 lakh crore capex annually. The Government of India can think of ways to incentivize the capex so that stakeholders are encouraged to continue investments to strengthen the digital infrastructure. For instance, if the government were to recognize rural broadband deployment as a legitimate CSR activity, it would unlock a substantial pool of private sector funds. Companies with unutilized CSR budgets could then allocate these funds to telecom operators or digital infrastructure providers, enabling them to expand their networks into rural areas.

From a direct tax perspective, telecom charges are classified as royalty and subject to tax deduction at source at the rate 10% under section 194J of the Income-tax Act, 1961 (Act). Considering that the telecom services are standard services and margins earned by the telecom operators are usually low and they sustain only on volumes, the sector expects reduction in the withholding tax rate on telecom charges to 2% i.e., at par with the rate provided for Fee for Technical Services (FTS) under section 194J of The Act.


With the review of rate structure announced in the previous Budget, it is imperative that the Government is likely to reduce the complexity of multiple rate structures and exemptions. With strong push towards domestic manufacturing, the government has been increasing duties on finished goods/components to promote in house development. An increase in duty is expected on components/products on which manufacturing incentives have been provided. Further, with the success of India’s PLI scheme for semiconductors and components, incentives on additional telecom components and raw materials can be expected to complete the chain of domestic production and discourage mere product assembly. All this combined is expected to give a fillip to domestic manufacturing of telecom products and position India as a major export hub.

Telecom operators are currently paying GST towards License Fees, Spectrum Usage Charges and payment of spectrum acquired in auction through a Reverse Charge Mechanism (RCM) process. It has led to substantial accumulation of Input Tax Credit (ITC) for operators, adversely impacting working capital. Exempting GST under RCM on payments of these charges is expected to improve the liquidity situation for telecom operators. To further ease the financial burden on telecom operators, the Government can extend the carry forward period for business losses from 8 years to 16 years.


The year 2025 is expected to be a landmark year in the telecoms sector in India. Through pragmatic steps and with an eye on future growth, the upcoming Union Budget can play a key role in super-charging the sector.

(This article has been written by Prashant Singhal, EY India Markets Leader and Telecommunications Sector Leader)