Latest CBDT Notification: Sec. 10(46) Exemption
The Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) is a statutory body established by the Government of Uttar Pradesh in 2023 to develop expressways and industrial corridors in the state. UPEIDA is responsible for planning, designing, constructing, operating, and maintaining various expressway projects, such as the Agra-Lucknow Expressway, the Purvanchal Expressway, the Bundelkhand Expressway, and the Gorakhpur Link Expressway. These expressways are expected to improve connectivity, mobility, and accessibility in Uttar Pradesh, create employment opportunities, generate revenue, and foster socio-economic development.
Section 10(46) of the Income Tax Act, 1961 is a provision that exempts certain entities from paying income tax on specified income arising from them. The Central Government notifies the entities eligible for this exemption in consultation with the Central Board of Direct Taxes (CBDT), the apex body for administering direct taxes in India. The purpose of this provision is to encourage and support certain activities or sectors considered to be in the public interest or of national importance.
In this blog, we will analyze the implications and benefits of the CBDT notification that grants income tax exemption to UPEIDA under section 10(46). The essay will examine the features, objectives, impact, advantages, challenges, and limitations of this notification for UPEIDA and provide recommendations or suggestions for improving its implementation and effectiveness.
What Does the Notification Entail?
The CBDT issued Notification No. 78/2023 on September 19, 2023, notifying UPEIDA for the purposes of section 10(46) of the Income Tax Act, 19617. The notification specifies certain income categories arising from UPEIDA exempt from income tax. These include:
Grants received from the state government:
- Money received from the disposal of land, buildings and other properties, movable and immovable.
- Moneys received by way of rent & fees or any other charges from the disposal of land, building and other properties, movable and immovable
- Income earned from Tender Fees, Document Fees, License Fees
- Interest earned on funds deposited in banks and on (a) to (d) above
The notification also stipulates certain conditions for availing of the exemption. These are:
- UPEIDA shall not engage in any commercial activity
- Activities and nature of specified income shall remain unchanged throughout financial years
- UPEIDA shall file a return of income under section 139(4C) of the Income Tax Act
The notification applies retrospectively for the assessment year 2023-24, relevant for the financial year 2022-23.
Rationale And Objectives Behind the CBDT Notification
The rationale and objectives behind the CBDT notification are to promote infrastructure development, attract private investment, and boost economic growth in Uttar Pradesh. The notification is part of the state government’s vision to make Uttar Pradesh a leading state in industrialization, urbanization, and modernization. The notification also aligns with the central government’s policy of providing tax incentives to infrastructure projects vital for the nation’s progress.
- By granting income tax exemption to UPEIDA, the CBDT notification aims to achieve the following outcomes:
- Enhance the financial viability and sustainability of UPEIDA and its expressway projects, as they will not have to pay tax on their income from various sources.
- Encourage more private sector participation and investment in the expressway projects, as they will benefit from the tax exemption granted to UPEIDA.
- Stimulate economic activity and development along the expressway corridors, as they will create demand for land, housing, industry, commerce, tourism, and other services.
- Improve the quality of life and standard of living of the people of Uttar Pradesh, as they will have access to better transportation, connectivity, and opportunities.
Impact And Advantages Of The CBDT Notification For UPEIDA
The impact and advantages of the CBDT notification for UPEIDA are manifold. The notification reduces the tax liability of UPEIDA significantly, as it exempts a large portion of its income from taxation. According to a report by KPMG, UPEIDA could save up to Rs. 1.5 lakh crore in taxes over a period of 30 years due to this notification. This would increase its financial resources and enable it to invest more in expressway projects.
The notification also increases the attractiveness and competitiveness of UPEIDA’s expressway projects for private investors. As UPEIDA is exempt from paying tax on its income from various sources, it can offer lower tariffs and charges to private concessionaires who partner with it for developing, operating, and maintaining the expressways. This would reduce the cost and risk for the private sector and increase their returns and profits. The notification would also create a level playing field for UPEIDA with other tax-exempt entities, such as the National Highways Authority of India (NHAI), involved in similar infrastructure projects.
The notification also stimulates economic activity and development along the expressway corridors, creating a multiplier effect on the economy. The expressways improve transportation and connectivity in Uttar Pradesh and generate employment, revenue, and growth opportunities for various sectors and industries. According to a study by IIM Lucknow, the Agra-Lucknow Expressway alone has created 2.5 lakh direct and indirect jobs, contributed Rs. 15,000 crore to the state GDP, and increased the agricultural income by 20%. The notification would further enhance these benefits by providing tax relief to UPEIDA and its expressway projects.
The notification also improves the quality of life and standard of living of the people of Uttar Pradesh, providing them with better access to social and economic opportunities. The expressways reduce the travel time and cost for commuters and improve the safety and comfort of the journey. The expressways also facilitate the movement of goods and services and promote tourism and cultural exchange. The notification would improve these aspects by providing tax relief to UPEIDA and its expressway projects.
Challenges And Limitations of The CBDT Notification For UPEIDA
The challenges and limitations of the CBDT notification for UPEIDA are also significant. The notification imposes certain conditions on UPEIDA for availing of the exemption, which may restrict its operational flexibility and efficiency. One of the conditions is that UPEIDA shall not engage in any commercial activity, meaning it cannot earn any income from activities unrelated to its expressway projects. This may limit its scope and potential for diversification and expansion.
Another condition is that the activities and nature of specified income shall remain unchanged throughout financial years, which means that UPEIDA cannot change or modify its sources or income categories exempt from tax. This may limit its ability to adapt and respond to changing market conditions and customer preferences.
A third condition is that UPEIDA shall file a return of income under section 139(4C) of the Income Tax Act, which means that it has to comply with certain reporting and disclosure requirements. This may increase its administrative burden and cost.
The notification also poses challenges and limitations for UPEIDA regarding transparency and accountability. UPEIDA is exempt from paying tax on its income from various sources, so it may face less scrutiny and oversight from the tax authorities and other stakeholders. This may create a scope for misuse or abuse of the exemption by UPEIDA or its partners. For instance, UPEIDA may inflate or manipulate its income or expenses to claim a higher exemption or lower tax liability. Alternatively, UPEIDA may divert or misappropriate its funds for purposes other than its expressway projects.
Recommendations and Suggestions for Improving the Implementation and Effectiveness of the CBDT Notification for UPEIDA
The CBDT notification for UPEIDA is a welcome step that can have positive outcomes for both UPEIDA and Uttar Pradesh. However, to ensure that the notification achieves its intended objectives and benefits, UPEIDA and other stakeholders must follow some recommendations and suggestions for improving its implementation and effectiveness. Some of these are:
- UPEIDA should ensure that it complies with all the conditions stipulated in the notification for exemption and maintain proper records and documents to support its claims. UPEIDA should also cooperate with the tax authorities and other agencies in case of any audit or inquiry regarding its income or exemption status.
- UPEIDA should ensure that it uses its funds judiciously and transparently for its expressway projects and does not engage in any activity unrelated to its core objective or mandate. UPEIDA should also avoid conflict of interest or collusion with its partners or contractors and ensure they adhere to the highest standards of quality, safety, and ethics.
- UPEIDA should monitor and evaluate the performance and impact of its expressway projects regularly and report them to the relevant authorities and stakeholders. UPEIDA should also seek feedback and suggestions from the users and beneficiaries of the expressways and incorporate them into its future plans and actions.
- UPEIDA should ensure that it maintains high governance, ethics, and accountability standards in its operations and prevents any misuse or abuse of the exemption by itself or its partners. UPEIDA should also establish a robust grievance redressal and dispute resolution mechanism and ensure that any complaints or issues are addressed promptly and fairly.
By following these recommendations and suggestions, UPEIDA can improve the implementation and effectiveness of the CBDT notification and maximize its potential for infrastructure development, private investment, economic growth, and social welfare in Uttar Pradesh.
Conclusion
The CBDT notification that grants income tax exemption to UPEIDA under section 10(46) is a significant policy measure that has implications and benefits for both UPEIDA and Uttar Pradesh. The notification aims to promote infrastructure development, attract private investment, and boost economic growth in the state by providing tax relief to UPEIDA and its expressway projects. The notification also reduces the tax liability, increases the financial resources, and enhances the operational efficiency of UPEIDA. The notification also stimulates economic activity and development along the expressway corridors and improves the quality of life and standard of living of the people of Uttar Pradesh.
However, the notification also poses challenges and limitations for UPEIDA regarding operational flexibility, efficiency, transparency, and accountability. The notification imposes certain conditions on UPEIDA for availing the exemption, which may restrict its scope and potential for diversification and adaptation. The notification also creates a scope for misuse or abuse of the exemption by UPEIDA or its partners, which may undermine its credibility and effectiveness.
