Industry body Ficci wants the government to re-introduce tax incentives for the infrastructure sector.
In its pre-Budget wishlist to the government, the chamber has urged for restoration of tax exemption on income from investments in infrastructure projects.
The goverment had this year withdrawn sub-Section 23G of Section 10, which provided for tax exemption on such income. The government had justified this by saying that interest rates and corporate tax rates had gone down.
It had also cited exemption from tax on dividend income and from long-term capital gains tax in its defence.
Ficci has, however, told the government that tax rates have come down only marginally (effective rate being 33.66 per cent) and that tax flows from the sector have increased as infrastructure capital companies are subject to dividend distribution tax.
According to Ficci, the withdrawal has led to an increase in the cost of funds for infrastructure projects. Banks earlier used to charge a marginally lower interest rate on infrastructure projects as the net income of banks from these projects was considered tax-free.
However, with the withdrawal of this section, interest rates for all infrastructure projects will increase, Ficcis memorandum states.
The withdrawal would also affect the capacity of companies to raise cheap funds for future infrastructure projects, it said.
There are many ongoing infrastructure projects in critical sectors for which funds have been raised on the basis of the exemption.
In the absence of a grandfathering clause regarding income from existing investments in infrastructure projects, companies or infrastructure capital funds now have to pay tax on their income.
This amendment is in dichotomy with the recently introduced SEZ legislation which aims to provide fiscal incentives to private investors to create infrastructure in SEZs, the memorandum says.