Power transmission utilities, including PowerGrid Corporation, the countrys largest, have sought relaxation in tax deducted at source (TDS) on wheeling charges, which they say are higher than their tax liability.
Wheeling charges are levied by the transmission utilities for use of their network.
Following strict enforcement of TDS rules and show-cause notices, state electricity boards and distribution companies have started deducting TDS on wheeling charges paid to transmission firms from January this year. No TDS was being deducted prior to that.
A concerned PowerGrid, a Navratna public sector enterprise listed on the Bombay Stock Exchange, met the Central Board of Direct Taxes (CBDT) on Monday to seek the relief as it feared more cash outgo than its actual tax liability would result in cash blockage. Like most transmission companies, PowerGrid also pays the Minimum Alternate Tax (MAT).
MAT is levied at 10 per cent (11.33 per cent including education cess and surcharge) of the adjusted book profits in the case of companies where income-tax payable on the taxable income according to the normal provisions of the Income Tax Act, 1961, is less than 10 per cent of the adjusted book profits. With TDS also being deducted at 10 per cent, the cash outgo is likely to be higher as tax is being deducted on the entire transmission bill.
Our concern is that if TDS is higher than the tax liability, then it will result in cash blockage. We have requested the Central Board of Direct Taxes (CBDT) that wheeling charges should not come under TDS net, said a PowerGrid official, who did not wish to be quoted. PowerGrid is expected to pay MAT of Rs 200 crore in the current fiscal year. The company had a transmission income of Rs 4,188 crore in 2007-08.
While the transmission companies are keen to get a favourable response from CBDT, it is unlikely that the Board will agree to their request at a time when tax authorities are desperately trying to overcome a slowdown in tax collection, government sources said.
The department had issued show-cause notices to state electricity boards and distribution companies three months back, asking them why they were not deducting TDS on wheeling charges. However, there is no uniformity on TDS rate as some income-tax branches are collecting TDS at the rate of 10 per cent while others at 2 per cent, the discrepancy in rates have also been brought to the Boards notice.
Unlike PowerGrid, other transmission firms like Gridco in Orissa are smaller entities and do not make much profit. TDS deduction results in cash blockage for them. As distribution firms have started deducting TDS, Gridco is in the process of applying for a non-deduction certificate from the department so that TDS is not deducted by discoms, a Gridco official said.
Transmission companies, including PowerGrid, are already in a dispute with the service tax authorities, which have asked them to pay service tax. Earlier this year, the service tax authorities had slapped a Rs 413-crore tax demand on Power-Grid for various services between May 2006 and September 2008.