Post budget analysis on sectors: BMR Advisors

Energy: The proposals in respect of the energy sector – oil and gas, power and renewables were as anticipated; the roll forward of the income tax holiday for power by a year, denial of tax holiday for the ongoing round of NELP and indirect tax concessions for renewables. These were quite predictable.
 
Bold initiatives hoped via policy announcement such as diesel decontrol, were notable by their omission. The budget subsidy for under recovery of petroleum prices is woefully inadequate and will fall short unless reforms are undertaken rapidly.

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Financial Services: Budget 2011 proposes relatively limited changes in the taxing framework for the Financial Services industry. Though, on the face of it, it may appear that the Budget could have done more for the Financial Services industry, on balance, it seems to be a fairly good budget as it has targeted an annual growth rate of approximately 8.6%, and has put much more emphasis on the infrastructure sector, which is closely inter-twined with the Financial Services industry. This would help the Financial Services industry leverage off the various initiatives taken by the Government for benefitting the infrastructure sector.

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Infrastructure & Real Estate: Budget 2011 doled out quite a few measures both tax and non-tax in order to boost investment in infrastructure sector. Key non-tax proposals include issuance of tax-free bonds to the tune of Rs 300 billion, extension of tax exemption by a year on tax-saving infrastructure bonds, proposal to introduce special infrastructure debt funds to attract foreign financing in infrastructure sector and hike in FII investment limit by an additional USD 20 billion for investment in infrastructure-related sectors.
 
On the direct tax side, extending tax holiday for power by a year was pretty much on expected lines.
 
On the indirect taxes side there are material changes which may have far reaching impact for the infrastructure sector, such as significant revamp of CENVAT credit scheme necessitating a relook at prevailing tax positions; change in levy of service tax from receipt to accrual basis and introduction
of prosecution provisions.
 
On the future roadmap towards Goods & Services Tax ("GST") - Constitutional amendment bill to be introduced in the current Budget Session; work of drafting of model GST legislations underway; IT infrastructure to be soon put into place; though no specific date of implementation of GST announced.
 
Implementation of draft Direct Taxes Code ("DTC") along with sectoral reforms is likely to muster right ingredients for the infrastructure sector.

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IT and ITeS: One of the expectations of the Information Technology ("IT") industry from the Budget was the extension of the tax holiday under section 10A for STP units. In addition to this, the IT sector was also expecting some changes on the transfer pricing and dispute resolution front to reduce the ongoing litigation. On the indirect tax side, the industry was expecting significant relaxations/changes on the scheme for service tax refunds.
 
The expectation for the extension of the tax holiday for STP units has been turned down and moreover, the contentious provisions in the draft Direct Taxes Code ("DTC") seeking to levy Minimum Alternate Tax ("MAT") on Special Economic Zone ("SEZ") units have also been fast forwarded. On CENVAT credit rules, the scope of input services has been narrowed down thereby resulting in additional service tax costs on certain exclusions. On the policy front, while the Budget 2011 lacks any specific policy measure impacting the IT sector, the thrust of the government on e-governance and use of IT in tax and policy administration is evident and will go a long way in stimulating the domestic IT sector.

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Education & Healthcare: Budget 2011 proposes an increased outlay of Rs 520.57 billion on school and higher education.
 
The Finance Minister has also allocated Rs 210 billion towards implementation of Right of Children to Free and Compulsory Education Act, 2009 which came into effect from April 1, 2010. There was no announcement on the Foreign Educational Institutions (Regulation of Entry and Operations) Bill, 2010.
 
Meanwhile, the Finance Minister increased the budget allocation for the healthcare sector to Rs 267 billion; an increase of 20% over last year's budget allocation.

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