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More tax benefits sought for green energy
February, 01st 2007

The energy sector may see more than just a shade of green this year. The new and renewable energy ministry has asked the finance ministry to extend sops for the wind, solar and biofuel sectors in the Budget 2007-08.

The ministry has proposed exemption from 4% additional countervailing duty (ACVD) levied on raw-materials used in manufacturing wind energy generators (WEGs). About 60% of the components required for manufacturing WEGs are imported. Some of the components include gear boxes and blades.

The ministry has said that while WEGs and its parts are already exempted from excise duty, the manufacturers cannot avail the benefit of setting off of ACVD of 4% by way of Cenvat credit. The 4% AVCD was imposed in the Budget 2006-07. India has a wind energy potential of 45,000 mw of which about 6,000 mw has been tapped.

With a view to provide a level-playing field for all wind energy manufacturers, the ministry has also suggested that the two raw materials used in the manufacture of rotor blades be treated equally. Only epoxy resins used for blades in high capacity turbines are exempted from excise duty. Polyester resins that are used in blades for low capacity turbines suffer this levy.

To promote solar energy in the country, the ministry has proposed Income-Tax rebate on domestic installations of solar water heaters. It has suggested a one-time rebate in I-T for the year in which a solar system is installed. The ministry has said that an investment of Rs 15,000 (cost of a domestic solar hot water system of 2 sq metre collective area) may be allowed as a saving within the existing limit of Rs 1 lakh available for tax payers.

This will lead to a tax saving of up to Rs 3,000. It is estimated that 1 sq metre of installed solar water heaters can conserve 400 units of electricity. So far incentives for solar water heaters are in the form of subsidised interest loans. The ministry has also sought customs and excise duty exemption for plant and machinery used for processing oilseeds for bio-fuel production.

For plant and machinery, a lowered rate of 10% customs duty is levied on capital goods for industrial plants costing Rs 5 crore or more. It is proposed that the same benefits be extended to smaller plants with capital investment less than Rs 5 crore. It has also been proposed that bio-diesel blended diesel be exempted from excise duty as is the case with 5% ethanol blended petrol.

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