Profit-Linked tax incentives are increasingly on their way out but power plants with a combined capacity of 16,000 MW, set to be commissioned during 2013-14, might still enjoy a 10-year tax holiday. According to official sources, with a view to speeding up the pace of capacity addition in power generation, the coming Budget is likely to extend the benefit under Section 80-IA to these power plants.
The biggest beneficiary will be state-owned NTPC, while projects by Sterlite, Adani, Indiabulls, Jindal Power, Lanco, GMR and state utilities also could avail of the tax sop. Tata Power’s Mundra UMPP might benefit too as it is likely to get fully commissioned by December 2013. A few private sector transmission projects could benefit as well. It is expected that about 12,550 MW of capacity based on linked coal would be commissioned in 2013-14.
Including some capacities being created based on captive coal, the figure could go up to over 16,000 MW.
The finance ministry, sources said, has agreed to provide a special facility to power plants coming up in 2013-14, despite the Direct Taxes Code Bill, which does not have a tax holiday provision, being in Parliament. The DTC is likely to take effect in April 2014 and the principle that underlies the code allows for a broadening of the tax base, while keeping few exemptions/deductions. While there is a policy focus on infrastructure investments, the government’s economic policy advisers including the Prime Minister’s Economic Advisory Council have repeatedly stressed the need to spur capacity creation in the power sector.
Under the existing policy, the tax holiday benefit under Section 80-IA of the Income-Tax Act ends on March 31, making any power project that kicks off after that date ineligible. The incentive scheme allows a developer to get deduction of up to 100% profit for any 10 consecutive years out of the first 15 years of commissioning of a project.
The original deadline of the scheme was March 31, 2010, which was extended to March 31, 2011, through the Finance Act 2009. It has subsequently been extended in last two Budgets for periods of one year each.
“DTC is unlikely come into force before 2014. This will give us room to extend the profit-linked scheme by another year to provide relief to power projects that were supposed to be commissioned during the 11th Plan (by March 2012) but got delayed due to a variety of issues including fuel linkage,” said a government official who did not wish to be quoted.
The draft DTC Bill seeks to discontinue profit-based tax incentives and provides for an expenditure-based incentive (capital expenditure) scheme in relation to specific industries such as infrastructure (roads, ports and airports), power sector and SEZ developers. For the power sector, the government has been giving extension to the current regime to boost project development that would be crucial to bridge the widening energy deficit in the country. The peak deficit is still over 13% and the expectation is that this would increase if projects that are stuck are not cleared. Development of power sector is crucial for growth needs of the country as a deficit situation inhibits industrial activity.
Though the companies enjoying tax incentives under any existing scheme would continue to get them for the unexpired period, projects commissioned (and where developers have made some investment) after the cut-off date will be governed by provisions in the code.
The power ministry in its pre-budget memorandum to the finance ministry has also sought extension of Section 80 I A benefit up to 2017 to give benefit to ultra mega power projects and transmission projects planned for Twelfth five year plan period.