
	Education & Healthcare

Education

Policy

In Budget 2010, the Finance Minister reinforced the policy level thrust on inclusive development and highlighted the need for improving education facilities in rural as well as urban areas. The Finance Minister’s speech indicates that about 98 percent of the habitations in India are now covered by primary schools. With a view to bestow additional success to initiatives such as the introduction of the Right of Children to Free and Compulsory Education Act, 2009, Budget 2010 proposes an increased outlay of INR 420.36 billion on school and higher education. Additionally, it is proposed that various states in India will have access to grants of INR 36.75 billion for elementary education.

Tax proposals

Currently, the educational institutions enjoy a tax exemption provided they operate on not for profit basis. The Indian revenue authorities had been questioning the exempt status for the institutions earning profits. Budget 2010 does not specifically provide relief in the context of the education sector, although institutions engaged in the advancement of any object of general public utility have been provided marginal relief, provided their aggregate receipts from business activities do not exceed INR 1 million.

BMR comment

Despite the pressing need for structural reforms in the Indian education sector by facilitating entry of foreign and private players, Budget 2010 remained silent on the roadmap for various legislative expectations such as the implementation of the Foreign Education Bill, abolition of regulatory bodies such as the All India Council for Technical Education (AICTE) and University Grants Commission (UGC) and establishment of an overarching regulatory body. These reforms are likely to be introduced in financial year 2010-11.

Healthcare

Policy

The healthcare sector was accorded policy level focus in conjunction with measures to strengthen food security in the country. The Finance Minister increased the allocation for the Ministry of Health and Family Welfare from INR 195.34 billion to INR 223 billion for 2010-11, with an objective of bolstering public health initiatives and bridging gaps in the delivery of critical health services in India, especially in rural areas.

Direct tax proposals

From an income tax perspective, the industry primarily expected profit / investment linked incentives for hospitals in rural areas and underserviced Tier-II and Tier-III towns. Budget 2010 did not address these expectations, although ironically the Finance Minister did mention providing investment linked incentives for new hotels (2 star and above) set up anywhere in India to give boost to the tourism industry.

An increased deduction for R&D is proposed in Budget 2010. In-house research by specified organizations will now entail a 200 percent deduction as against 150 percent earlier. Also, persons making payments to notified scientific research organizations (which would include organizations involved in medical research) will be entitled to a 175 percent deduction as against 125 percent deduction earlier, thus encouraging payments to such organizations which would foster advancements in the healthcare sector.

Indirect tax proposals

The indirect tax proposals were largely focussed on introducing service tax on certain health care services and rationalizing the incidence of customs and excise duties on medical equipment. On an overall note, the proposals seem to favour basic healthcare services while the additional levies are on the premium medical equipment and corporate healthcare services. These proposals are more detailed below:

•	Services such as health check up for employees and health services under health insurance schemes rendered by hospitals, nursing homes and clinics, and services of maintenance of medical records of employees have been proposed to be subjected to service tax
•	With the intent of removing multiplicity of duty rates, and difficulties in qualification for description based concessions for equipment, duties on medical, surgical, dental and veterinary equipment along with parts and accessories are now based on their tariff headings and attract basic customs duty at 5 percent (effectively 9.2 percent)
•	Import of certain metals and alloys for manufacture of orthopedic implants has been exempted from basic customs duty, subject to the actual user condition
•	The exemption from CVD on life saving medical equipment for specified hospitals has been withdrawn; such imports will now attract CVD of 4 percent
•	Excise duty of 4 percent has been imposed on various medical equipment such as glucometers and test strips
•	Excise duty exemption to ophthalmic blanks for manufacture of optical lenses is withdrawn and duty on goggles not used for correcting vision has been hiked from 4 to 10 percent.

BMR comment

While Budget 2010 has positive notes for the healthcare sector in the form of wider and easier coverage for import of medical equipment at concessional rates, going forward, a long term and more inclusive developmental paradigm for India’s rural sector would continue to be a key expectation. Supporting such development through incentives such as location based income tax holidays for new healthcare centers and provision of drugs at concessional prices would be key policy level challenges in the near future.

For more information, please contact Shefali Goradia, Malini Mallikarjun

Disclaimer : This publication provides general information existing as at the time of preparation. The publication is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this publication will be accepted by BMR Advisors. It is recommended that professional advice be taken based on the specific facts and circumstances. This publication does not substitute the need to refer to the original pronouncements.