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Government rolls back tax incentive for wind farms
April, 03rd 2012

The government has ended the tax break given to wind energy projects much against the wishes of industry players who argued that without the popular incentive, capacity addition in the sector could fall to less than 1,000 MW as against the proposed 3,000 MW.

The income-tax department has issued a circular stating that wind farms commissioned in financial year 2012-13 would not get accelerated depreciation benefit that allowed them to write off investments sooner.

The circular states that the Central Board of Direct Taxes (CBDT) has amended the Income-Tax Rules, 1962, which means that beginning April 1, all new wind farms can only claim a standard depreciation rate of 15%.

"It is surprising that despite the Union Budget and finance bill laying specific emphasis on renewable energy, the policy change takes away one of the key pillars of India's success in this field. India needs power for growth, and this step unfortunately pushes the country in the wrong direction, increasing our dependence on conventional energy and imported fuels that cost our economy more every year," a spokesperson of wind turbine maker Suzlon Energy told ET.

Wind energy industry, which is expected to add another 15,000 MW in the next five years, thrived even as other sectors missed targets due to incentives such as generation-based sops to independent power producers and accelerated depreciation available to captive users.

Accelerated depreciation allows investors, mostly setting up capacity for captive use, to take advantage of up to 80% of the project cost if it's commissioned before September 30 of the financial year, or 40%, if the project is commissioned before March 31 of the financial year.

Independent power producers, who set up units to sell electricity to state distribution companies, typically opt for generation-based incentives that give them a benefit of Rs 0.50 for every unit of electricity.

"It is surprising that accelerated depreciation has been rolled back for wind farms while it would be available for solar projects. Historically, this benefit has driven capacity addition in the wind energy sector and this could be a step to curb the misuse of the benefit," said Hemal Zobalia, Partner, KPMG India.

According to industry experts, in the past few years, almost 70% of the new wind capacity has been added by entities under the 'accelerated depreciation' route, which is why equipment makers like Suzlon Energy, Spain's Gamesa Corp, and Denmark's Vestas Wind Systems have been seeking its extension.

Ramesh Kymal, chairman and managing director of the Indian subsidiary of Spain's Gamesa, had earlier told ET, "Rolling back the incentives would be catastrophic for wind turbine makers who have made huge investments in building capacities in India. Global wind market is going through a slowdown, and if domestic orders dry up, then we would be forced to run under capacity."

 
 
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