Law May Be Amended To Benefit Power Companies

The government plans to amend provisions of Section 115BAB of the Finance Act 2019 in order to extend the benefit of lower corporate tax to companies engaged in the generation of electricity by qualifying their activity as ‘manufacturing’.

This would be done as part of the government’s efforts to incentivize the power sector and make its operations viable.

Under the amended Finance Act 2019, concessional tax rate of 15% is applicable on a domestic company set up and registered on or after October 1, 2019 and which starts manufacturing on or before March 31, 2023. Presently, this provision is restricted to companies engaged in manufacturing or production and leaves out power generation.

However, this may change now with electricity generation to be considered ‘manufacturing’ as part of the union budget proposals, to be announced by Union Finance Minister Nirmala Sitharaman on February 1, 2020.

To provide clarity and certainty, the government might amend provisions of Section 115BAB of the Finance Act 2019 to provide that companies engaged in generation of electricity should also be entitled to the benefits provided.

Alternatively, a clarification may be issued to provide that manufacture or production of an article or thing will also include power generation.

A lower 15% duty would be big relief to promoters of power generation projects since they are liable to pay 25% corporate tax at present.

Incidentally, companies like Adani, Tata, Vedanta and JSW Energy plan to expand their power sector footprint, but have been awaiting the right climate to commit fresh investments.

Tax relief, apart from assurance of fuel, is expected to give a push to their fresh investments.