Power generation deemed manufacturing, pay lower 15% corp tax

As part of efforts to attract investment in the power sector and make its operations viable, the Budget 2020-21 on Saturday extended the benefit of lower corporate tax rate of 15 per cent to generating units by qualifying their activity as manufacturing.

Last year, Finance Minister Nirmala Sitharam provided for a new corporate tax rate of 15 per cent for new manufacturing entities. The concessional rate was, however, not extended to the power sector as its activity was not considered as manufacturing.

Presenting the budget proposals for FY21, Sithraman said that the 15 per cent tax rate would now be applicable to new domestic companies that are engaged in the generation of electricity subject to the condition that they start generating electricity by March 31, 2023.

"Numerous court judgments have made it clear that electric energy has all trapping of an article or goods. The process of its generation is also akin to manufacture or production of an article or thing. In view of this, the broad understanding is that new power projects should also get the same treatment as it is given to other manufacturing units," said a government source earlier.

Industry chambers had also pushed for the changes which they felt would be big incentive for the corporate sector to invest in greenfield power projects. Absence of demand and poor financial ability of state run discoms have created distress like situation in the power sector with several plants coming under stress.

With incentive available to the sector by way of tax holiday also getting over and the government not inclined shift back of the earlier system of tax holidays, relief by way of lower corporate tax could help companies looking at making fresh investment in the sector.

A lower 15 per cent duty would be big relief to promoters of power projects as they are liable to pay 25 per cent corporate tax now. Companies such an Adani, Tata, Vedanta, and JSW Energy are all looking to expand their footprint in the power sector but are waiting for the right climate to commit fresh investment. Tax relief apart from assurance of fuel is expected to give a push to fresh investments.

( With inputs from IANS )