
	Infrastructure & Real Estate

Overview

Budget 2010 reiterates the relevance of infrastructure development as key to achieving sustained economic growth. Almost half of the planned allocation under the Budget has been earmarked for infrastructure development. Investment needs in building roads, industrial corridors, power projects has been reiterated as well. Most of the tax proposals echo this ethos. To illustrate, power equipment manufacturers have been granted excise duty exemption as well as ability to claim input tax credit, in respect of supplies to mega power plants, regardless of whether or not such supplies are being made by them under International Competitive Bidding (ICB) route. Similarly, project import status has been granted to mono rail projects and several food storage/handling infrastructure projects. Notwithstanding some of these good proposals, imposition of customs duty at 16 percent on electricity generated by power plants located in a Special Economic Zone (SEZ) and supplying power to Domestic Tariff Area (DTA)/non processing area and levy of service tax on electricity exchanges appears to be retrograde. From a corporate tax perspective, Budget 2010 does not offer much. It, therefore, appears that in the coming days, the attention and advocacy efforts of the industry will need to be trained towards the proposals of the Direct Tax Code and the Goods and Service Tax, which was reiterated by the Finance Minister to come into effect on April 1, 2011.

Budget 2010 was a much anticipated event for the real estate sector, since this sector was looking for announcements to aid recovery. The real estate sector, a sector slowly limping back to recovery, had a lengthy wish list. Although the real estate had new found liquidity in QIPs and public issues, players were seeking access to External Commercial Borrowings (ECB) and an ‘infrastructure status’ for housing, among other things. The sector was also hoping for all the unfulfilled wishes from the last budget (tax pass-through status for real estate funds, increase in housing loan interest deduction and tax holiday for housing) to be addressed in the current budget. Budget 2010 has turned out to be a mixed bag for the real estate sector and certain proposals could actually prove to be dampeners for the housing sector, which has been leading the slow recovery of the real estate sector.

Policy initiatives

•	Allocation for infrastructure development in the country amounting INR 1,735.52 billion, which accounts for over 46 percent of the total plan allocations
•	Targeted to construct the national highways at the pace of 20 km everyday
•	Allocation for road transport section to increase by 13 percent above the allocation in 2009-10 to INR 198.94 billion
•	Allocation for railways to increase by 6 percent above the allocation in 2009-10 to INR 167.52 billion
•	Delhi-Mumbai Industrial Corridor project has been taken up for integrated regional development. Preparatory activities have been completed for the creation of six industrial investment nodes with eco-friendly world class infrastructure
•	India Infrastructure Finance Company Limited (IIFCL) to provide long term financial assistance to infrastructure projects. Its disbursements are expected to increase by 122 percent above than the disbursements in 2009-10, to INR 200 billion
•	Allocation for power sector [other than allocation for Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY)] to increase by 130 percent above the allocation in 2009-10 to INR 51 billion
•	Proposal to introduce competitive bidding process for the allocation of the coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks
•	Proposal to take steps to set-up a ‘Coal Regulatory Authority’ to create a level playing field in the coal sector for economic pricing of coal and benchmarking of standard of performance
•	In a move to boost affordable housing, the 1 percent interest subsidy scheme has been extended to March 31, 2011. The government had introduced this scheme in the last budget to promote low-cost housing. Under this scheme, borrowers will be given a 1 percent subsidy on loans upto INR 1 million
•	Allocation for the Indira Awas Yojana, a popular rural housing scheme for weaker sections, is being increased to INR 100 billion
•	Allocation for Housing and Urban Poverty Alleviation is being raised from INR 8.50 billion to INR 10 billion
•	The Rajiv Awas Yojana for slum dwellers and urban poor was announced last year to extend support to states that are willing to provide property rights to slum dwellers. The proposals include an allocation of INR 12.70 billion for 2010-11 as compared to INR 1.50 billion last year
•	Infrastructure thrust to be maintained in rural and urban areas
•	5 mega food parks to be set up
•	Government committed to SEZ growth
•	Defence allocation up by INR 60 billion

Direct taxes

•	The changes to the individual income tax rates would translate into higher disposable income and this together with the interest subvention should provide an impetus to the low-cost housing sector
•	The time-limit for completion of projects eligible for deduction under section 80IB has been extended to 5 years from the current limit of 4 years
•	The extent of commercial space that can be created in the housing projects eligible for deduction under section 80IB has been increased to upto 3 percent of the aggregate built-up area of the housing project or 5,000 sq ft, whichever is higher
•	Section 56 is proposed to be amended to include within its ambit, transfer of shares of an unlisted company either for inadequate consideration or without consideration to a firm or another unlisted company. Accordingly, the difference between the fair market value of such shares and the consideration shall be chargeable to income tax in the hands of the transferee
•	Investment-linked incentive under section 35AD is now proposed to be extended to new hotels of 2 star or above category which commence operations after April 1, 2010, irrespective of their location. Pursuant to this amendment, such hotels would now be eligible for an investment-linked tax incentive of 100 percent of any capital expenditure (other than on land, goodwill and financial instrument) incurred during the year in which such expenditure is incurred or in the year of commencement in respect of expenditure which is incurred prior to the commencement of operations
•	The time limit for completion of hotels and convention centers in the National Capital Region which are eligible for deduction under section 80ID is proposed to be extended from March 31, 2010 to July 31, 2010
•	Investments in long term infrastructure bonds (as may be notified by the Central Government), to the extent of INR 20,000, will be allowed as deduction in computing the taxable income of an individual. This deduction will be over and above the existing overall limit of tax deduction on savings of upto INR 100,000
•	It is proposed that the transfer of assets on conversion of a company into a Limited Liability Partnership (LLP) in accordance with the relevant provisions of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purpose of capital gains tax, subject to satisfaction of certain conditions. It is also proposed to allow the carry forward and set-off of business loss and unabsorbed depreciation to the successor LLP which fulfills the prescribed conditions. These provisions will apply only in cases where the turnover of the company is less than INR 6 million

Indirect taxes

Customs

•	Import of electrical energy (including removal from SEZ to DTA and non-processing zones of SEZ) attracts Basic Customs Duty (BCD) at a specific rate of INR 2,000 per 1,000 kw-hr. The same was, however, wholly exempt from customs duty by a separate notification. This exemption has now been partly rolled back. Consequently, electrical energy removed from SEZ to DTA and non-processing zones of SEZ would now attract customs duty at 16 percent ad valorem (but no CVD and ACD) with retrospective effect from June 26, 2009. Exemption from customs duty would continue on other supplies or import of electrical energy While availing the above exemption, the dichotomy between the specific tariff rate and ad valorem rate for the purpose of exemption merits consideration
•	Mono Rail Project for urban transport has been granted a status of Project Import. Goods required for setting up of such Project would attract duty at concessional BCD of 5 percent (effective customs duty rate of 20.94 percent)
•	Road construction machineries: The condition that imported equipments cannot be sold for a period of 5 years to avail the customs duty on import of specified road construction machinery has been liberalized. Such goods can be sold/disposed off after payment of customs duty at the rate applicable on the date of import of such machineries, on the depreciated value (5 percent per quarter on the straight line method) as on the date of clearance Also, it would be permissible to relocate or redeploy the equipments to another road construction project for which the importer would have been otherwise eligible to claim the benefit of the exemption
•	Tunnel Boring Machine for hydro-electric power project provided full exemption from customs duty

Excise

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Excise duty rates on cement and clinker
As a result of increase in the standard rate of excise duty, the excise duty rate on branded and non-branded cement and clinker has also been significantly enhanced. The change in excise duty rates on branded and non-branded cement and clinker is captured below.

Mini cement plant

Period	Pre Budget	Post Budget
Cement cleared in packaged form: -of retail sale price not exceeding INR 190 per 50 kg bag; or -of per tonne equivalent retail sale price not exceeding INR 3,800	INR 145 per tonne	INR 185 per tonne
Cement cleared in packaged form, other than mentioned above	INR 250 per tonne	INR 315 per tonne
Cement not cleared in the packaged form	INR 170 per tonne	INR 215 per tonne

Other than mini cement plant

Period	Pre Budget	Post Budget
Cement cleared in packaged form: - of retail sale price not exceeding INR 190 per 50 kg bag; or - of per tonne equivalent retail sale price not exceeding INR 3,800	INR 230 per tonne	INR 290 per tonne
Cement cleared in packaged form other than mentioned above	8 percent of the MRP	10 percent of the MRP
Cement not cleared in the packaged form	8 percent of the MRP or INR 230 per tonne, whichever is higher	10 percent of the MRP or INR 290 per tonne, whichever is higher
Cement Clinker	INR 300 per tonne	INR 375 per tonne

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Condition to claim excise exemption on supply of goods to Mega Power Projects aligned to the new Mega Power Policy: Exemption extended to supply of goods to mega power projects from which supply of power has been tied up through tariff-based competitive bidding or the project is awarded through tariff-based competitive bidding
Cenvat credit allowed on inputs used in the manufacture of goods supplied to such mega power projects from which power has been tied up through tariff-based competitive bidding or the project is awarded through tariff-based competitive bidding under Rule 6(6) of Cenvat Credit Rules

Service tax

•	New service tax category to levy service tax on services provided by Electricity exchanges proposed
•	Exemption from service tax on transmission of electricity provided
•	Exemption from service tax on transportation of goods by rail services has been withdrawn
•	The definitions of the taxable services, namely the ‘Airport Services’, the ‘Port Services’ and the ‘Other Port Services’ are being amended to provide that all services provided entirely within the airport/port premises would fall under these services. An authorization from the airport/port authority would not be a precondition for taxing these services While the aim of this amendment is to plug any revenue leakage by arguing lack of specific authorization, this may lead to ambiguities. For example, construction related services for ports and airports are outside the service tax net. This amendment may lead to a scenario where such services rendered inside the port/airport premises is claimed to be leviable to service tax by the Revenue
•	The scope of the taxable service ‘Air Passenger Transport Service’ is being expanded to include domestic journeys and international journeys in any class Statutory taxes charged by any government (including foreign governments, where a passenger disembarks) on air passenger would be excluded from taxable value for the purpose of levy of service tax under the ‘Air Passenger Transport Service’
•	Definition of taxable service of ‘renting of immovable property services’ has been substituted to provide definitive clarification that renting per se shall also attract service tax levy under the category of ‘renting of immovable property services’. This amendment has been given retrospective effect from June 1, 2007, and seeks to overcome the impact of the Delhi High Court ruling in the Home Solution Retail India case which struck down the levy of service tax on commercial rentals primarily on the ground that only services in relation to renting is taxable and renting per se is not taxed Finance Bill categorically states that no suit or proceedings shall be maintained in any tribunal, court or before any authority for the levy and collection of service tax on commercial renting per se. Therefore, any litigation pending before any forum on this issue could now be rendered invalid
•	Vacant land given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce is proposed to be included within the definition of ‘immovable property’ and is brought into the service tax net under the taxable category of ‘renting of immovable property services’.
•	Construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction, except in cases where no sum is received from the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate, is proposed to be deemed to be service provided by the builder to the buyer. Thus, going forward, irrespective of the method of contracting, the levy of service tax is linked to time of payment of consideration to the builders by the prospective customers
•	Special services provided by builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges are proposed to be covered under a new taxable service category

For more information, please contact Sujit Ghosh, Abhishek Goenka, Mahesh Jaising

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.