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Mixed Bag For ENR Sector

The budget has brought about a mixed bag in relation to the ENR sector. There has been no extension of the existing sunset clauses

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The budget has brought about a mixed bag in relation to the ENR sector. There has been no extension of the existing sunset clauses. However, this was expected as part of the overall tax game plan of the Government in tandem with reducing corporate tax rates. However, this has been tempered with other monetary incentives and clear and facilitating provisions.

The budget has made positive announcements on the policy front as regards rural electrification and augmenting nuclear power generation. However, as far as tax is concerned, as expected, the sunset as regards tax holiday for undertakings engaged in generation, distribution, transmission of power has not been extended and hence comes to an end on 31 March 2017. Further, the accelerated rates of depreciation available on certain solar and wind equipment have been reduced from 80% to 40 per cent. However, there is some relief in terms of additional depreciation of 20 per cent on new plant and machinery being extended to transmission of power which was earlier available only for manufacture, production or in case of generation or distribution of power. These amendments fortify the Government's stance on reduction of tax incentives in a phased manner and supporting the sector through alternate policy measures.

In case of Oil and Gas, there is a strategic policy announcement in relation to storage of oil as part of a country's reserves. In order to encourage foreign participation in the cost of filling of the facility and encourage storage of oil, the storage and sale of crude oil has been exempted from tax in India. This positive amendment has taken place with retrospective effect from 1 April 2016. Further, the current tax holiday in case of undertakings engaged in production of mineral oil and natural gas has been terminated with a sunset date of 31 March 2017.

Further, with relation to mining, while a Special Notified Zone had been created to promote India as a hub for diamond trading by global companies and reduce the costs of travel for purchase of raw materials by Indian diamond manufacturers, it was feared that the limited activity of mere display of diamonds even without actual sale may lead to a business connection and potential taxation. To allay such fears, it has been specifically provided that the mere activity of display without any trading or sorting of diamonds would not lead to a business connection in India. This amendment is also retrospective in its effect from 1 April 2016.

These reforms and clarifications would go a long way in providing sustainable support to ENR sector and ensuring that the sector becomes a strong pillar for the country's growth.

With inputs from Pooja Balachandar - Senior Manager of Deloitte Haskins and Sells LLP

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
Budget 2016-17 Energy & Natural Resources tax rates

Hemal Zobalia

The author is Partner, Deloitte Haskins & Sells LLP

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