Budget analysis: Infrastructure and 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.

For complete report, read attachment.

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