India: Budget 2016-17: Highlights Of The Government's Budgetary Proposal For The Infrastructure And Energy Sector

Last Updated: 28 October 2016
Article by DSK Legal

On February 29, 2016, the Government of India presented the Union Budget of 2016 – 17. The Union Budget for the financial year 2016 – 2017 (Budget) sets out 'Transform India', an agenda for transforming and developing India, comprising of the nine distinct pillars requiring immediate focus.

These nine pillars consist of safeguarding agriculture and farmers' welfare, emphasizing on the rural sector and its infrastructure, strengthening the social sector and health services, focusing on generating opportunities in education, jobs and skill generation, enhancing infrastructure and investment efficiently, bringing about transparent financial sector reforms, improving the existing standards of governance and ease of doing business, ensuring fiscal discipline and lastly, passing the necessary tax reforms.

In order to give the necessary impetus to the infrastructure and energy sector, the following proposals have been made in the Budget:

  1. Proposed Legislative Action and Fiscal Outlay:
    1. The Budget proposes an allocation of Rs. 55,000 Crore for construction, development and maintenance of roads and highways. The aggregate allocation for the road sector including the allocation under the Pradhan Mantri Gram Sadak Yojana (PMGSY) has been pegged at Rs. 97,000 Crore under the Budget. Further, the total fiscal outlay on roads and railways is proposed to be Rs. 2,18,000 Crore. It proposes approval with respect to nearly 10,000 kilometres of national highways in the financial year 2016 – 2017. In addition, state highways of aggregate length of 50,000 kilometres will be upgraded to national highways. The Budget has proposed a total outlay of Rs. 2,21,246 crores for the infrastructure sector.
    2. The Budget also makes allocation of Rs. 800 Crore for the development of green – field airports and national waterways across the country.
    3. For the promotion of the oil and gas sector, it has proposed to introduce measures for calibrated marketing freedom for gas production from deep – water, ultra – deep water and high temperature – high pressure areas and also, introduction of pre – determined ceiling price for marketing. The Budget provides that a comprehensive plan for augmentation of investment in nuclear power generation with budgetary allocation of Rs. 3,000 Crore.
    4. The National Highways Authority of India (NHAI) proposes to raise additional finance of Rs. 15,000 Crore through issue of bonds. The NHAI, Power Finance Corporation Limited, Rural Electrification Corporation Limited, Indian Renewable Energy Development Agency Limited, National Bank for Agriculture and Rural Development and the Inland Waterways Authority of India proposes to raise additional finances aggregating to Rs. 31,300 Crores through issue of bonds.
    5. Introduction of the Public Utility (Resolution of Disputes) Bill has been proposed in order to streamline the existing institutional arrangements for resolution of disputes in infrastructure related construction contracts, public private partnership and public utility contracts. Further, guidelines for re – negotiation of Public Private Partnershio (PPP) concession agreements and a credit rating system exclusively for infrastructure projects are proposed to be introduced as per the Budget.
  2. Proposed changes with respect to Direct Taxes:

It has been proposed that deductions in respect of profits and gains derived from development, operation and maintenance of specified infrastructure facilities under Section 80 – IA of the Income Tax Act, 1961 shall not be available for such activities commencing on or after April 1, 2017. However on and after April 1, 2017, the development, operation and maintenance of infrastructure facilities shall be eligible for investment – linked deductions under Section 35AD of the Income Tax Act, 1961.

Deductions in respect of profits and gains for production of mineral oil and natural gas under Section 80 – IB (9) of the Income Tax Act, 1961 shall not be available for activities commencing on or after April 1, 2017.

Further benefit of initial additional depreciation of 20% has been extended to power transmission entities under Section 32 (1) (iia) of the Income Tax Act, 1961.

  1. Proposed changes with respect to Indirect Taxes:

The Clean Energy Cess is proposed to be renamed as the Clean Environment Cess, and its applicable rate shall be increased to Rs. 400 per metric tonne. The erstwhile exemption on customs duty for solar tempered glass or solar tempered (anti reflective coated) glass for use in manufacture of solar cells/ panels/ modules shall be revoked from March 1, 2016 and customs duty of 5% shall be applicable. Exemption of counter vailing duties on specified goods required for construction of roads and highways shall be withdrawn as and from March 1, 2016. However, power generation projects using municipal solid waste for power generation shall be eligible for customs duty concessions on furnishing valid agreement with local bodies for processing of the municipal solid waste for a period of 10 years from the date of commissioning of such project. For equipment parts of railway or tramway locomotive or rolling stock, track and fixtures and refrigerator containers, the applicable rates under the Central Excise Tariff Act, 1985 is proposed to be reduced from 12.5% to 6%. Ready mix concrete manufactured and used at construction sites have been exempted from excise duty. Oil Industry Development Cess on domestically produced crude oil has been revised from Rs. 4500 per metric tonne to 20% ad valorem. Exemptions of service taxes on construction, erection, installation etc. of original works pertaining to airports and ports which were withdrawn have been restored for contracts entered into prior to March 1, 2015 on which appropriate stamp duty has been paid. Such exemptions are applicable till April 1, 2020. Exemptions of service taxes on construction, erection, installation etc. of original works pertaining to monorail and metro which were withdrawn have been restored for contracts entered into prior to March 1, 2016 on which appropriate stamp duty has been paid. Construction of buildings and other civil structures and other ancillary services have been made eligible for CENVAT credit on only input services.

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.

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