Budget, 2011 did not contain too many changes to the legal provisions; the majority of the changes were more of policy initiatives which have material impact on the tax paying public.

Thrust areas in the realm of income tax include infrastructure funding and extension of tax benefit to important industries such as housing, hotels and hospitals by amending Section 35AD.

Business in the nature of developing and building housing project under affordable housing scheme is eligible for tax benefit viz deduction of all capital expenditures incurred prior to commencement of business excluding cost of land or goodwill or any financial instrument.

The business must satisfy the conditions of the scheme framed by the Central or State Government and notified by the CBDT for this purpose.

Previously, the tax benefit was limited to slum development or rehabilitation and now affordable housing project as per the scheme of Central or State Government is also eligible.

100-bed hospital

Earlier hospitals established in rural area were given hundred per cent deduction of income for a period of 5 consecutive years and it was applicable only where the hospital was constructed before March 31, 2008.

Yet another category of hospitals became eligible for tax deduction subject to the condition that it started functioning at any time on or after April 1, 2008 but before March 31, 2013. The conditions to be satisfied are stringent viz. the construction of hospital must be in accordance with the regulations or bye-laws of the local authority.

The Finance Act, 2010 simplified the tax benefit to this sector by allowing complete deduction of capital expenditure by inserting Section 35AD and the eligible conditions were also less stringent.

The Finance Act, 2011 has liberalised the set-off provisions by allowing the income from any existing hospital to set off against the capital expenditure incurred in establishing yet another eligible hospital covered by Section 35AD.

Hotels

Hotels were eligible for certain tax relief either under Section 80-IB(7) meant for corporates (up to assessment year 2010-11) or under Section 80-ID at hundred per cent for five years if located in any specified area. These provisions were not that attractive to the taxpayers. Section 35AD provides for deduction to the extent of capital expenditure incurred though it does not give any tax relief in respect of income derived from such activity.

The Finance Act, 2011 has given extended tax relief in the case of taxpayers who are already engaged in running of hotels (two star and above category) by allowing incomes to be set off against the capital expenditure incurred in establishing a new hotel falling in the category of eligible business. The Finance Minister thus has given tax holiday indirectly to taxpayers who are already engaged in operating hotel or hospital by encouraging them to start yet another hotel or hospital by meeting the criteria prescribed in Section 35AD and pay tax only after recovering the entire capital expenditure of the new business.

(The author is an Erode-based chartered accountant.)

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