ANALYSIS OF BUDGET

FOR THE YEAR 2011-

2012

Education
Overview
Budget 2011 proposes an increased outlay of INR 520.57
billion on school and higher education. The Finance
Minister has also allocated INR 210 billion towards
implementation of Right of Children to Free and
Compulsory Education Act, 2009 which came into effect
from April 1, 2010. There was no announcement on the
Foreign Educational Institutions (Regulation of Entry and
Operations) Bill, 2010.

Key tax proposals

Direct tax:
Currently, the educational institutions enjoy a
complete tax exemption provided they operate on
not-for-profit basis solely to provide education. Budget
2011 does not propose any change impacting
educational institutions directly.

Indirect tax:
The indirect tax proposals are largely focused
on expanding the coverage of commercial training or
coaching services and levying excise duty on specific
products. Effectively, certain segments of this
industry are now being subjected to service tax and excise
duty:
The status based exemption to pre-schools, institutes and
establishments (issuing certificates, diploma or degree or
education qualification recognized by law) has been
withdrawn; the legislative intent indicated is that courses
offering recognized qualifications would continue to
be exempt, while those unrecognized courses would be
taxable regardless of the status of the entity offering such
courses.

The excise duty exemption on certain products such as

note books, printing paper for printing of educational text
books has been withdrawn; such goods now attract
marginal excise duty at 1 percent (subject to non-
availment of CENVAT credit). The tax payers also have
the option to pay excise duty at 5 percent with CENVAT
credit.

COMMENTS:
While Budget 2011 proposes initiatives to
improvise access to education by children and backward
classes of the Indian economy, it does not make mention
of the Foreign Educational Institutions (Regulation of Entry
and Operations) Bill, 2010 which seeks to facilitate the
entry of foreign and private players in the education
sector. The replacement of regulatory bodies such as the
All India Council for Technical Education ("AICTE") and
University Grants Commission ("UGC") by an
overarching regulatory body has received some level of
resistance and hence, it remains unclear when the
educational sector will undergo structural reforms. Also,
the creation of singular platform for charging service tax
on unrecognized courses and imposition of marginal
excise duty is indicative that this sector could be taxed
under GST on a concessional basis.

Healthcare
Overview:
The Finance Minister increased the budget
allocation for the healthcare sector to INR 267 billion; an
increase of 20 percent over last year's budget allocation.

Key tax proposals

Direct tax proposals:

Weighted deduction for
payments to national laboratories, universities and Indian
Institutes of Technology for undertaking specific scientific
research increased from 175 percent to 200
percent. Presently, losses from a specified business
(which included the building and operating of a new
hospital) could be set off only against profits and gains
from other specified businesses. For a taxpayer engaged
in the business of operating hospitals, this could have
implied that losses from new hospitals could be set off
only against profits of another new hospital. In Budget
2011, the Finance Minister has clarified that such
taxpayers will be allowed to offset losses from new
hospitals against profits of existing hospitals being
operated by such taxpayer.

Indirect tax proposals:

Health care services now
appear to be a primary focus of revenue generation. The
changes introduced also relate to rationalizing the
incidence of customs and excise duties on medical
equipment. The proposals seem to continue the
favourable tax treatment of basic healthcare services and
promote homeopathic medicines, while levying service tax
on healthcare services and excise duty on certain
specified products, detailed below:
The coverage of health care services has been expanded
to include services provided by the clinical (such as
hospitals, nursing homes, dispensaries, clinics,
sanatorium or any other institution having central air
conditioning and more than 25 beds) or diagnostic
establishments, including services provided by
independent doctors in such establishments in any system
of medicine.
Basic Customs Duty ("BCD") on import of endovascular
stents is exempted. Special Additional Duty ("SAD") on
imported patent and proprietary medicines intended for
retail sale has been exempted. BCD reduced to 5 percent
and Countervailing Duty ("CVD") to Nil on specified life
saving and bulk drugs (such as rasburicase, nilotinib).
Reduction in BCD on lactose from 25 percent to 10
percent for use in homeopathic medicine.
Levy of marginal excise duty at 1 percent without CENVAT
credit on certain specified products such as surgical
rubber gloves, nipples for feeding bottles, subject to non
availability of CENVAT credit. Manufacturers also have an
option to pay excise duty at 5 percent with
CENVAT credit.

COMMENTS:
There were several expectations from
Budget 2011 for the healthcare sector, being the sector
second in focus after infrastructure. While the current
proposals are welcome, they do not focus on
providing incentives for creation of infrastructure for
healthcare. Expectations such as increased
weighted deductions for in-house research and
development, increase in the scope of expenses
covered in such deductions, etc have not been addressed
by the Finance Minister.