India: Budget 2016: Key Updates - Infrastructure Sector

Last Updated: 10 March 2016
Article by   Trilegal

The Budget 2016 lays emphasis on giving a boost to the infrastructure sector in a number of ways. It focuses on improving rail infrastructure, accelerating the process of construction of roads and development of ports and national waterways. Also, in order to revitalise PPP projects, specific initiatives have been announced.

The Union Budget 2016, has proposed a high budgetary allocation for the infrastructure sector to give a boost to infrastructure and investment with a major focus on roads, alongside railways and ports. Financing issues in this sector have also been addressed.

Key initiatives are proposed to re-vitalize infrastructure Public-Private Partnership (PPP) projects, such as enactment of the Public Utility (Resolution of Disputes) Bill and issuance of guidelines on renegotiation of PPP Concession Agreements. A new credit rating system for infrastructure projects is also proposed.

Further, the road transport sector in the passenger segment is proposed to be opened up for private participation. The government has also proposed plans for revival of unserved and underserved airports in partnership with states.

Key policy announcements

(a) The budget proposes to allocate INR 2.18 trillion for road and rail sector for the next fiscal.

(b) INR 550 billion is proposed to be allocated towards roads and highways, with an additional INR 150 billion being raised by National Highways Authority of India through bonds.

(c) Nearly 10,000 kilometers of National Highways are proposed to be approved in the fiscal year 2016-17. Additionally, 50,000 kilometers of State Highways, will be taken up for upgradation as National Highways.

(d) Road transport sector in the passenger segment is proposed to be opened up to the private sector by amending the Motor Vehicles Act to allow more private participation.

Key tax announcements

Direct tax

(a) No changes are proposed in the corporate tax rates, which are currently at 30% (plus surcharge and cess), except for some small companies, new manufacturing entities and startups (not availing tax incentives and accelerated depreciation).

(b) Phasing out of 100% profit linked incentives for infrastructure facilities is being proposed.

(c) The commitment to implement General Anti Avoidance Arrangement (GAAR) from 1 April 2017 is reiterated in the budget.

(d) The Income Tax Act is proposed to be amended to provide that with effect from 1 April 2001, no Minimum Alternate Tax (MAT) would be applicable on a foreign company, if such foreign company does not have a permanent establishment under the relevant tax treaty or a place of business in India.

(e) The Budget provides that profit linked deduction on eligible business of infrastructure facility (road, rail system, highway project, port, airport, etc.) and development of a special economic zone will be available only if such activity is commenced on or before 31 March 2017.

(f) With a view to completely phase out exemptions and tax incentives, the budget proposes to restrict accelerated depreciation to 40%, from the current 80%, with effect from 1 April 2017.

(g) No dividend distribution tax will be payable on any distribution made out of income of a Special Purpose Vehicle to the REITs and INVITs having specified shareholding.

(h) An additional tax at 10% of gross amount of dividend is proposed to be paid by non-corporate recipients, receiving dividend in excess of INR 1 million per annum.

(i) A graded reduction in the weighted deduction for expenditures incurred on scientific research is proposed.

(j) The budget proposes to clarify that capital gains arising from transfer of a long term asset being share of a private limited company will be chargeable to tax at the rate of 10%.

(k) Subject to fulfilment of prescribed conditions, a 100% deduction is proposed for profits to an undertaking engaged in developing and building affordable housing projects (for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities), approved during June 2016 to March 2019. However, MAT will apply in such cases.

(l) For first time home buyers, the budget proposes a deduction of INR 50,000 per annum for additional interest paid on loans up to INR 3.5 million, sanctioned in 2016-17, where the house cost does not exceed INR 5 million.

Indirect taxes

(a) The effective service tax rate will be increased to 15%. Krishi Kalyan Cess at the rate of 0.5% will be levied on the value of all taxable services.

(b) The following key exemptions are proposed to be introduced / restored in the budget:

(i) service tax exemption on construction services are proposed on affordable houses (up to a carpet area of 60 sq. metres), under any housing scheme of the state government;

(ii) the exemption on services of construction, erection, maintenance etc. of canal, dam or irrigation works provided to government entities (which was initially introduced in January 2014) is now retrospectively granted from 1 July 2012;

(iii) service tax exemption for the following services is proposed to be restored with effect from 1 April 2015 till 30 March 2020, in respect of contracts entered into before 31 March 2015 (where applicable stamp duty has been paid):

  • specific construction, erection etc. services provided to the government or local authority or governmental authority;
  • specific construction, erection etc. of original works pertaining to airports and ports.

(c) The budget proposes to withdraw service tax exemption on services of construction, erection, commissioning or installation of original works pertaining to monorail or metro in respect of contracts entered into on or after 1 March 2016.

(d) Excise duty exemption, presently available to concrete mix manufactured at site for use in construction work at such site, is proposed to be extended to ready mix concrete manufactured at the site of construction for use in construction work at such site.

(e) Excise duty is proposed to be reduced to 6% on parts of railway or tramway locomotives or rolling stock (chapter heading 8607) and railway or tramway track fixtures and fittings etc. (chapter heading 8608).

(f) Exemption of countervailing duty is proposed to be withdrawn on specified machinery required for construction of roads.

(g) Abatement rates in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, are proposed to be rationalized at 70% by merging the two existing abatement rates (70% for high-end residential units and 75% for low-end residential units depending on area and value of such unit).

(h) Certain changes in the reverse charge mechanism are proposed in the budget. Accordingly, the service tax liability is proposed to devolve on the recipient business entity:

(i) with respect to any service provided to it by government or local authorities;

(ii) on receiving services of transportation of goods by vessels into India, from a service provider located outside India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.