India Extends Tax Holiday for Power Companies to 10 Years

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Researched by Industrial Info Resources India (Delhi, India)--India's Finance Minister, Arun Jaitely, has set a new trend in his maiden budget, by extending the current tax holiday enjoyed by companies involved in the business of generation, transmission or distribution of power for a 10-years period instead of an annual extension. Annual extension to this tax sop had become a sort of norm in the budget announcements for the past few years.

The power sector had called for an extension of the sunset tax clause for power companies to include plants that start power generation by March 2017 as opposed to 2013 earlier, according to a pre-budget memorandum by the Federation of Indian Chambers of Commerce and Industry (FICCI).

Doing away with the norm, Jaitley has decided to offer the 10-year tax holiday to the companies who begin generation, transmission or distribution of power before March 31, 2017. Jaitley noted that stability in policy is critical as it will help investors plan better. The tax holiday is provided to the power sector under Section 80-IA(4)(iv) of the Income Tax Act.

The industry body had added that in view of the re-investment needs by the holding company in the power sector, the Dividend Distribution Tax (DDT) should be levied only at the ultimate parent company, and Special Purpose Vehicles (SPVs) should be exempted.

Shares of power for power generation companies gained sharply after the announcement of the tax holiday. Leading power companies, such as Tata Power Company Limited (BSE: 500400) (Mumbai), Reliance Power Limited (BSE: 532939) (Mumbai), NTPC Limited (BSE: 532555) (New Delhi) and Adani Power Limited (BSE: 533096) (Ahmedabad, Gujarat), gained 2-4% on the bourses on Thursday.

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