New Tax Code Proposes Investment-Linked Incentives

The Direct Taxes Code (DTC) Bill is suggesting that profit-linked incentives can be replaced with investment-linked incentives for businesses that currently enjoy tax cuts.

If the proposal is approved, this may change incentives for special economic zone developers and businesses dealing with power, infrastructure, food processing, hotels and hospitals.

Under investment-based incentives rules, capital expenditure incurred for certain businesses will be counted as deductible expenditure.

Authorities are making sure, however, that specific profit-linked tax incentives found under the Income Tax Act will still continue when the DTC is implemented.

The proposal will apply investment-linked incentives to businesses in:

* Generation, transmission or distribution of power
* Developing or operating and maintaining any infrastructure facility
* Operating and maintaining a hospital in a specified area
* Processing, preservation and packaging of fruits and vegetables
* Laying and operating of a cross country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of the network

Investment-based incentives will also be available for new two-star hotels beginning operations on or after April 1, 2010. A company who develops a new hospital with at least 100 beds can also qualify for incentives as well as those projects which aim to rehabilitate slums.

Authorities say that profit-linked incentives are inefficient and only lead to more revenue loss and litigation.

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