The Finance Minister increased the budget allocation for the healthcare sector to Rs 267 billion; an increase of 20% over last year's budget allocation.

Healthcare Overview

The Finance Minister increased the budget allocation for the healthcare sector to INR 267 billion; an increase of 20% 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 175-200%.

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.

BMR 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.

Sourced from BMR Advisors

e-mail: Sff

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