The Centre on Monday, with a view to encouraging generation and reducing transmission and distribution losses, announced extension of tax holiday for the power sector by one more year till March 31, 2012.

The extension of tax break is part of the government's efforts to scale up the power generation capacity to meet the growing needs. Unveiling the budget for 2011-12 in Parliament, Finance Minister Pranab Mukherjee said tax holiday for the power sector would be extended till March 31, 2012.

The power sector is entitled to tax exemption under Sec. 80-IA of the Income-tax Act. The tax exemption would benefit projects that are expected to take off in the remaining period of the XI Plan (2007-12), including ultra mega power projects (UMPPs). During this Plan period, the capacity addition was envisaged at 78,700 MW and was later revised to 62,374 MW. Capacity addition of 32,032 MW was achieved till December 31, 2010.

Projects that start power generation, distribution, transmission or that undertake substantial renovation and modernisation of the existing network are eligible for exemption.

Further, the government is planning to provide excise duty exemption for domestic companies that supply capital goods for mega and ultra mega power projects. Capital goods imported for existing mega or UMPPs are given concessional excise duty.

These goods are entitled for a concessional basic customs duty of 2.5 per cent as well as exempted from the counter vailing duty (CVD). Mr. Mukherjee noted that the exemption creates a disability for the domestic suppliers who are required to pay central excise duty on supplies to mega and such projects. “I propose to correct this anomaly by providing a parallel excise duty exemption,'' he added. To boost the use of green technologies, the customs duty on solar lanterns would be reduced to 5 per cent from the existing 10 per cent. Further, Mr. Mukherjee noted that the basic customs duty on a few more inputs used in the manufacture of solar modules/cells is being reduced to nil. Meanwhile, the government proposes to invest Rs.57,640.84 crore in 2011-12 in public sector power entities, including NTPC and NHPC. The allocation is much higher than Rs.50,947.42 crore in the current fiscal.