Union Budget 2024-25: NSEFI Calls for Key Fiscal Amendments to Power Renewables

Union Budget 2024-25: NSEFI Calls for Key Fiscal Amendments to Power Renewables
Ahead of the Union Budget 2024-25, to be presented by Union Finance Minister Nirmala Sitharaman on July 23, NSEFI has submitted key recommendations that look at tax and GST reforms for giving a fillip to the energy sector. The Budget Session commences from July 22 and will run till August 12. It will be the first full fiscal year budget in the third tenure of Prime Minister Narendra Modi.
The main proposals of NSEFI relate to improvement in taxation framework for companies formed as SPVs in power generation and infrastructure projects. Another chief recommendation is the introduction of group relief for income-tax purposes, whereby the parent and subsidiary SPVs can be treated as a single assessee. The move seeks to correct the financial imbalances of stand-alone fiscal valuations of SPVs whereby some of the vehicles have to incur losses emanating from the huge initial investments while other parent holding entities record profits.
Further, an extension in sunset date for section 115BAB of the Income Tax Act, 1961 has been sought by the NSEFI. Section 115BAB provides new manufacturing companies, including the ones engaged in power generation at a corporate tax rate of 15 percent. The validity period of this section is up to March 31, 2024. Considering the impact of COVID-19 and resultant economic slowdowns, that delayed project commissioning, NSEFI has sought an extension up to March 31, 2026.
There is, at NSEFI, an argument chain and lines for adjustments in valuation mechanism of Solar Power Generating Systems under the GST regime. The association has mooted for adjustment in the ratio of valuation from 70:30 to 85:15 and the corresponding GST rate for goods from 12 percent back to 5 percent, following the Government's decision a few months ago that had hiked the GST rate for goods from 5 percent to 12 percent, increasing the effective rate from 8.90 percent to 13.80 percent. It would bring down the effective rate to around 6.95 percent.
The concessional GST rate of 5 percent is suggested for goods and services used in PSP development by NSEFI. Due to this 10 percent reduction, PSP tariffs may be brought down by about 0.60 INR/kWh, thereby continuing to spawn inflation-free, fixed tariff Renewable Energy with Round-The-Clock for 25 years.
The strategic recommendations of the NSEFI are aimed at certain challenges that the sector of renewable energy faces. Group relief for SPVs would lessen financial stress by allowing losses from initial investments to be set off against profit and, therefore, enhance greater financial stability and investment. The continuance of section 115BAB will give new manufacturing companies, including those in the power generation sector, a longer period to take advantage of the reduced tax rates, thereby encouraging further investments and completion of projects.
Hence, the overall tax burden on RE Projects would be lowered; hence making them economically more viable through proposed adjustments in GST on Solar Power Generating Systems and PSPs. This shall finally lead to reduction of tariffs and make RE affordable to the consumers.