Singh’s objective of making India a global destination is well addressed

Dr K C Ojha

Hon’ble Finance Minister seems to have drafted Budget 2003 with three principal objectives in mind:

i] Enhance national health

ii] Promote India as a global health destination

iii] Enable better access to health facilities These objectives have been fulfilled through empowering the private sector. This sector has been encouraged to set up more facilities by way of the following:

Infrastructure industry benefits to hospital industry

Under the proposed amendment in section 10(23G) of IT Act, any income by way of i] dividends, ii] interest or iii] long-term capital gains of an infrastructure capital fund/ an infrastructure capital company/ a co-operative bank from investments made by way of shares or long-term finance in any infrastructure undertaking including construction of hospital projects with at least 100 beds or more will not be included in computing its total income.

As a result, hospital projects with 100 beds and more will be eligible for term loan from financial institutions or venture capital funds at substantial concession rate of interest (may be between 8 to 10 per cent per annum). However in the FM in his budget speech has stated that the move is to encourage new hospitals or expansion of existing facilities. Whether expansion projects will benefit therefore needs to be clarified.

Investors in the shares of corporate hospitals under section 10(23G) of IT Act, will be eligible for tax-free long term capital gain and tax-free dividend and lenders advancing loan for the hospital projects of 100 beds or more, their income by way of interest will be exempted for computing taxable income.

Omission in the proposal for hospitals

It is worth drawing attention of the hon’ble FM that under the section 80 IA of the IT Act, the profit of infrastructure project is not liable for income tax for ten consecutive years out of 15 years from the date of commencement of infrastructure project/ services. However this benefit of tax exemption is not extended to the hospital infrastructural projects through the recent proposals. Hence the leaders of healthcare industry should make appropriate representation immediately for seeking this tax exemption and incorporate the same in the finance Act finally. It is felt that this amendment has escaped from the attention of appropriate authorities.

Service Tax

An aspect of Budget 2003 neglected by analysts is the impending constitutional amendment to empower central and state governments to levy service tax. This levy of tax on services as a specific and important source of revenue is being proposed after due amendments. The constitutional amendment, and the consequent legislation would give the Central Government the power to levy the tax and both the Central and the State Governments sufficient powers to collect the proceeds.

After the above stated amendment, state governments may levy the tax on hospital services, on the ground that many private hospitals are charging additional charges as surcharge/service charges in the range of 10 to 20 per cent. In future, this power in the hands of state governments may come as a serious blow to the healthcare industry with the rate of service tax being raised from 5 to 8 per cent this year. Service tax at 8 per cent is being imposed on the following services which will cover services provided to healthcare industry:

a] Technical testing and analysis [excluding health and diagnostic testing]

b] Maintenance and repair services namely, Annual Maintenance Contracts [AMC] and authorized maintenance and repair services [plant, machinery, equipment etc.]

c] Commissioning and installation services [plant, machinery, equipment etc.]

d] Franchise service [one healthcare organisation is providing franchise to other healthcare organization]

Hospitals will have to pay sizeable amount by way of tax on procuring above stated services. At present Service Tax is levied on following on health related services: (a) Beauty treatment including beauty parlour, (b) Health & fitness service, (c) Health club & fitness center, (d) Technical testing and analysis (does not including any testing or analysis service provided in relation to human beings or animals)

Donation to charitable hospitals from the Trusts having similar objects

Budget 2003 also empowers assessing officers to allow inter-trust donations where a trust or institution is being dissolved. Under the existing provision contained in the proviso to sub-section (3A) of section 11, where due to circumstances beyond the control of a trust or institution in receipt of the income, the accumulated income could not be applied for the purpose for which it was accumulated or set apart. Transfer of any such accumulated income to other charitable trusts/ institutions is not allowed as application of income towards charitable purposes.

This provision has created genuine problems for those trusts and institutions, which are wound-up. In order to remove this hardship, it is proposed to amend the proviso to sub-section (3A) of section 11 so as to empower the Assessing Officer to allow donation to another trust or institution as application of accumulated income for charitable purposes in the year in which the trust or institution claiming exemption is dissolved. The proposed amendment will take effect from 1 April, 2003, and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. The charitable hospitals are likely to benefited by this amendment in the IT Act.

Other amendments

Tax will not be deducted at source for professional services fees taken for personal purpose. (to medical doctors). This has been clarified the doubt in respect of deduction of Income Tax at source.

Note: For more details, the readers are advised to study section 10[23G] of IT Act, for benefits to infrastructure industry and section 80DD, 88DDB and 80U of IT Act, for deduction of expenses for medical treatment in respect of disability of dependent persons or for himself and specified disease. Deduction of medical treatment expenses from total gross income

a] In respect of maintenance including for medical treatment expenses of a dependent being a person with disability over 40% upto rupees fifty thousand and a person with severe disability [disability over 80%] upto rupees seventy five thousand deductable from total gross income [for more information refer section 80DD of IT Act].

b] In respect of himself, a person suffering from permanent disability including blindness or is subject to mental retardation upto rupees fifty thousand for disability over 40% and for disability over 80% upto rupees seventy five thousand deductable from total gross income. [for more information refer section 80U of IT Act]

c] In respect of actually incurred any expenditure by an assessee [for himself] for medical treatment of such disease or element as may be specified in the rules made in this behalf by the board are deductable from total gross income [for more information refer section 80DDB of IT Act].

The author is managing director, Hospital Consultancy Bombay Pvt Ltd (Hospic), Mumbai-based hospital consultancy firm.