Charged by tax exemption

Usually, the Budget extends the ten-year tax exemption enjoyed by power companies under section 80-IA of the Income Tax Act by a year. But this time around, the exemption has been extended by three years to March 2017.

Power stocks rejoiced, gaining up to 4 per cent even as the Sensex closed with marginal losses.

Under this section, a company can claim 100 per cent deduction on profit earned from any new generation, transmission, or distribution capacity commissioned by it until March 2017.

Given the significant upcoming capacity expansions in the sector, power generation companies stand to gain a lot from this extension. A total of 14,958 MW of thermal power capacity is expected to be commissioned in 2014-15. Some of the large beneficiaries in this space include NTPC (855 MW), Indiabulls Power (540 MW) and Sterlite Energy (1320 MW). Another big gainer would be Power Grid Corporation of India, the country’s principal transmission utility. It will be adding about 7,300 MW to its inter-regional transmission capacity in 2014-15.

The measure also comes as a boost to power producers such as NHPC, which have experienced delays in commissioning new capacities. It has 490 MW of projects currently under construction, which are expected to be commissioned by 2016-17.

This apart, the Budget has put an end to the difficulty in differentiating several kinds of coal. It has brought the customs duty on all types of coal to a uniform level - 2.5 per cent basic customs duty plus 2 per cent countervailing duty.

Consequently, the customs duty on steam coal, a key input for thermal power plants, has gone up from the existing 4 per cent to 4.5 per cent. However, this will have only a miniscule impact on fuel costs. Global steam coal prices have eased considerably over the last one year from around $95 (₹5,700) a tonne to $82 (₹4,920) now. The duty hike will add about ₹25 per tonne of imported coal.

Even so, all major power producers including NTPC, Tata Power and Adani Power sell electricity to State distribution utilities under power purchase agreements. These agreements allow for any increase in State levies to be passed through in tariffs. The Budget has also raised the Clean Energy Cess from ₹50 per tonne of coal to ₹100, which can raise tariffs for consumers by only 1 paise per unit.

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