India stuns wind industry with about turn on tax breaks

Date: 
April 04, 2012

The Indian government has ended the tax breaks awarded to wind energy projects 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.

According to the country's Economic Times newspaper, 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 percent.

“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 the newspaper.

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 percent of the project cost if it’s commissioned before September 30 of the financial year, or 40 percent, if the project is commissioned before March 31 of the financial year.

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.”