Power bonds up to Rs 50,000 may be tax-free

Vidyut Vikas Patras mulled to mobilise savings.

With an eye on channelising domestic savings into the power sector, the finance ministry is considering granting income-tax exemptions for individual investments up to Rs 50,000 in power infrastructure bonds.

It is also considering issuing vidyut vikas patras as a small saving instrument to mobilise savings to meet the envisaged funding gap of Rs 4,50,650 crore for the sector during 2007-12.

The measures are being discussed by the finance and power ministries for inclusion in the forthcoming Budget.

Among other proposals, the power ministry has suggested tax exemptions on profits from energy-saving efforts by companies.

It has also proposed rationalisation of the current duty structure on equipment and fuels to reduce the cost of power for consumers. It has sought lower excise and countervailing duty as well.

It has also asked for only two rates of Customs duties, one for imports for mega power projects and the second for others. This duty structure should also be applicable on transmission equipment, the ministry has said.

To give a fillip to the rural electrification programme under Bharat Nirman, the power ministry has sought complete excise and Customs duty waiver for equipment for decentralised distributed generation projects (up to 5 Mw). It has also sought to exempt franchises engaged in management of rural distribution system from service tax.

The ministry has also recommended including the power sector in the category of "infrastructure facility" to ensure tax exemption to operation and maintenance bodies.

It has also sought restoration of the "pass-through status" to venture capital funds for the sector. The pass-through status was withdrawn in the 2007-08 Budget.