Expectations from Union Budget and its Impact on Infrastructure Investments

PRLog (Press Release) - Feb. 9, 2013 - Infrastructure projects in India are entitled for a tax holiday under Section 80 IA for 10 consecutive years during the first 15/20 years of their operation.  However, levy of MAT during this period greatly negates this tax benefit. According to the estimates made by the Planning Commission in March 2010, after taking into account the recent trends in different sources of infrastructure financing, the funding gap in the infrastructure sector during the last two years of the Eleventh Five Year Plan is likely to be Rs. 1,27,570 Crore, which is around 18% of the total estimated requirement. To support the high economic growth, the investment requirements in the infrastructure sector is estimated to be around 41 Lac Crores  (revised to Rs 45 Lac Crores in the Approach paper for the Twelfth Plan) during the Twelfth plan period. This implies that infrastructure investment will need to increase from about 8.0 per cent of GDP in the base year (2011-12) of the Plan to about 10.0 per cent of GDP in 2016-17.

Therefore to attract investment into the infrastructure sector effectively, restoration of a separate limit to Section 80 CCF outside Section 80 C would allow various government undertakings to issue tax-free bonds for making investments in railways, power, housing and highways. Private infrastructure companies should also be allowed to issue such tax-free bonds for various infrastructure activities. Exempting holding companies from the payment of dividend distribution tax, if holding companies invest the dividend received from their subsidiary units in the infrastructure business will also work in this regard.

On the housing front, presently the Government offers interest subvention of 1% for low-cost housing loans up to Rs 15 Lac, provided the housing cost does not exceed Rs 25 Lac.  Implementing the interest subvention scheme extended to the total housing cost of up to Rs 35 Lac is desired.  This sector has one of the largest multiplier effects and an incentive for investments in low-cost housing would create demand in more than 200 industry sub-sectors.
Quoting on the expectations from the Budget to bring a positive impact on Infrastructural Investments, Tarun Shienh (Managing Director, Premia Projects Limited and a Real Estate Expert said, “Budget with a provision for restoring the separate limit u/s 80 CCF outside section 80 C will going to boost investment in the infrastructure and realty sector”.

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