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The ninth auction round of oil and gas exploration blocks will not see an extension of the seven-year tax holiday available to the prospective bidders on production of mineral oil. The Budget for 2011-12 proposes to remove this tax holiday for NELP blocks awarded after March 31, 2011.
Budget 2011 could be the last budget under the current tax laws as it is expected as the new Direct Taxes Code (DTC) will come into effect from April 2012. The DTC is likely to replace profit-linked incentives with investment-linked incentives. This sunset clause is seen as a run-up to the DTC.
Under the existing provisions of Section 80-IB (9) of the Income-Tax Act, a seven-year profit-linked deduction of 100 per cent was available to previous NELP winners.
The Budget for 2011-12 says that “it is proposed that the aforesaid deduction available for commercial production of mineral oil will not be available for blocks licensed under a contract awarded after March 31, 2011 under the New Exploration Licensing Policy announced by the Government…”
This amendment will take effect from April 1, 2012. Unless this date of March 31, 2011 is extended, blocks on offer under NELP-IX round will not be eligible for tax holiday, as production sharing contracts for these blocks is not likely to be signed before this date, Mr Akhil Sambhar, Associate Director, Oil & Gas Practice, Ernst & Young, said.
Power sector
For the power sector, the Finance Minister, Mr Pranab Mukherjee, has extended the tax holiday by one more year till March 31, 2012. The extension of tax break is part of the Government's efforts to scale up the country's power generation capacity during the terminal year of the current Plan period.
Under Section 80-1A of the Income-Tax Act, the power sector is entitled to tax exemption, which was originally slated to end this fiscal. Projects that start power generation, distribution, transmission or that undertake substantial renovation and modernisation of existing network are eligible for the tax sop.
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