Budget 2023-24: Industry Bodies Ask For Tweaks In Tax Implications For Renewable Energy Sector

The unveiling of the Union Budget 2023-24 is now just a few weeks away. Ahead of the announcement by Finance Minister Nirmala Sitharaman, several industry bodies and experts have weighed in on their expectations from this year’s budget. One such emerging sector is the ‘energy industry,’ hoping for some allocations and reforms to meet the expectations of the changing dynamics of the Indian economy.

So far, 2022 has been a challenging year for the global economy. With the Russia-Ukraine war hampering the global energy market, countries across the world were forced to re-evaluate their equations with energy sources due to disruptions in global supply chain and resulting soaring prices. The Federation of Indian Chambers of Commerce & Industry FICCI, in a pre-budget memorandum says, “The recovery of the global economy following the pandemic-induced shocks was halted in the wake of the Russian invasion of Ukraine, posing headwinds to the growth prospects and fuelling global inflationary pressures. Several shocks have battered the global economy, which was already weakened by the pandemic.”

What The Energy Industry Wants From Budget 2023-24?

Amit Barve, Business Unit Head of Solar, Panasonic Life Solutions India, puts the Budget 2023 predictions and expectations simply for all. He says, “India will need to make considerable headway in the renewable energy sector this year. Developing nation with population of over 1 billion, our energy needs would keep growing continuously. Given that energy and climate are at the center of the G20 and that this year marks the halfway mark since the Sustainable Development Goals went into effect, it is anticipated that the budget for this year will promote and increase benefits to support the renewable sector in order to meet this ever growing energy demand."

Hence, starting with the most basic of all, the energy industry is pinning some hope on petrol and diesel. Arguing in favour of the importance of bringing such products under the ambit of the Goods and Services Tax (GST), several industry experts are hoping for some recommendations in this regard in the Union Budget 2023-24. While it is known that decisions on GST are taken by the GST Council, recommendation in the budget is all that is hoped for.  

“Until the time petroleum products are brought within GST net, suitable amendment in the excise laws be made to allow credit of GST paid on inputs/input services and capital goods against payment of excise duty to the manufacturers of petroleum products,” said FICCI in the pre-budget memorandum. 

Also Read | Union Budget 2023-24: Industry Pins Hope On Rationalisation Of Capital Gains Tax

Since India has been ramping up its efforts towards a greener and more sustainable economy, energy industry expectations are naturally inclined towards reaping maximum benefits to support the cause. 

On this, industry experts are now hoping for some tweaks in the tax implications. Debasish Mishra, Partner & Leader - Energy, resources and industrials, Deloitte India hopes that the government provides a beneficial tax treatment for income from sale of Renewable Energy Certificates (RECs). While asserting that RECs are similar to carbon credits, he explains, “At present, the Act includes beneficial provisions (i.e., Section 115BBG) in relation to income from transfer of carbon credits. However, there are no similar provisions with respect to RECs. This creates confusion for taxpayers and litigation with the tax department....... Therefore, the concessional or NIL tax, similar to Section 115BBG, should be proposed with respect to income earned from the sale/transfer of RECs.”

The last budget was touted to be an ‘infrastructure-heavy’ budget and with recent announcements for development of railway and airports related projects, these areas have only become more capital intensive. Hence, another hope of the industry from this Budget 2023 is inclusion of the power sector and railway or airport redevelopment under Section35AD as specified business. 

“Power, railway redevelopment, and airport redevelopment projects have always been capital intensive. The inclusion, set up, and operation of renewable power plants, and redevelopment of railways and airports under the concession agreement should be included as the 'specified business' definition for Section 35AD. The assessee engaged in developing, operating, and maintaining any power generation facility, railway redevelopment, airport redevelopment project, should be covered either as a specified business or within the meaning of the infrastructure facility,” said Deloitte. 

Another expectation of the energy sector is with regards to the promotion of renewable energy. On this, Samir Somaiya, Vice President, IMC Chamber Of Commerce and Industry said, “The Government's policies to encourage renewable energy by way of the Ethanol Blending Programme, the Compressed Biogas Programme (SATAT) are helping the country make rapid strides in this regard. To further accelerate this green transformation it would be important to have incentives to promote renewable energy, 2G ethanol, flex fuel hybrid vehicles and to create an Indian market for decarbonisation (Carbon credits).”