Budget 2016: Walking the talk- Infrastructure and real estate

Avinash Narvekar, tax partner, EY India

Infrastructure and real estate sectors started out as Modi government's growth drivers, seeking to corner all the attention for a while. But with the government's latest showcase projects like Make in India, Digital India and Ease of Doing Business in India, taking centre stage, infrastructure and real estate have been craving attention and spending from the government.

With this Budget, finance minister Mr Arun Jaitley has again brought the infrastructure sector to the forefront of development by announcing policy measures and substantial government spending. The estimated total outlay for the sector is a significant Rs2,21,246 crore.

The government is slated to invest a total of Rs97,000 crore during 2016-17 in the road sector, which would include Rs15,000 crore to be raised by the National Highway Authority of India through bonds. The government plans to approve nearly 10,000km of national highways in 2016-17. Roadways development is also supplemented by the government's plan to revive unserved and underserved airports/airstrips in a joint effort with state governments.

The Budget also focused on giving the much-needed boost to Public Private Partnerships (PPPs) by way of a three-point action plan, which entails introduction of the Public Utility (Resolution of Disputes) Bill during 2016-17, issuance of crucial guidelines for renegotiation of PPP Concession Agreements, and introduction of new credit rating system for infrastructure projects. This action plan is expected to go a long way in bringing back on track derailed projects which had been waiting for that last-mile funding.

As expected and as had been communicated, the finance minister has also phased out the tax holiday for companies engaged in developing infrastructure facilities and special economic zones (SEZs). This seems to be a shift from profit-linked tax incentives to investment-linked incentive for infrastructure facilities, as the capital expenditure on building such infrastructure facility has now been allowed as an upfront tax deduction.

In addition to the big-ticket infrastructure announcements, the government has given the common man a reason to cheer too. In an effort to boost affordable housing, the finance minister has announced a 100% deduction for profits to projects, building homes up to 30 sqm in the four metro cities and 60 sqm in other cities. Service tax exemption has also been granted on construction of affordable houses of up to 60 sqm under any scheme of the central or state government including PPP schemes. These benefits may likely be passed on to the ultimate buyers.

As a direct incentive to the common man, the Budget has also made provision for an additional interest deduction of Rs50,000 per annum for loans up to Rs35 lakh (sanctioned in 2016-17) for first-time homebuyers. The deduction shall be limited to cases where the cost of the house does not exceed Rs50 lakh. Additionally, limit of deduction with respect to house rent paid under section 80GG has also been raised from Rs24,000 to Rs60,000 per annum to give relief to employees staying in rented accommodations and not availing of any house rent allowance from their employers.

In the real estate space, the government has addressed one of the key concerns regarding real estate/ infrastructure investment trusts. The government has provided for exemption from levy of Dividend Distribution Tax (DDT) in respect of distribution made by the Special Purpose Vehicle (SPV) to the REITs or INVITs, subject to certain conditions. The levy of DDT at the level of the SPV was perceived as a major bottleneck by stakeholders and seen as the predominant reason for the REIT/ INVIT-related initiatives not taking off even a year after the regulations being announced.

The finance minister and the government have walked the talk as evidenced by the government's intent to develop infrastructure and real estate sectors as the key pillars of India's growth story. What was missing though was the road map/indication for further widening and deepening the channels of finance available for infrastructure funding.

The Budget announcements coupled with increased spending on these sectors, and especially by keeping the fiscal deficit within the target level of 3.5% of GDP, will go a long way in building the confidence of the existing players in this space as well as drawing newer investments.

Harsh V. Shah, senior tax professional at EY, contributed to the article. The views expressed in this article are personal.