Ahead of the 2024-25 Union Budget, the National Solar Energy Federation of India has sent a slew of its key recommendations to revive the energy sector by way of strategic fiscal reforms. The budget is set to be presented on 23 July and would form the first full fiscal year Budget under the third tenure of Prime Minister Narendra Modi.
Fiscal Reforms in the Tax Framework for SPVs:
The main proposals in this area for NSEFI relate to the improvement of the tax framework for SPV’s undertaking infrastructure projects. NSEFI has mooted a group relief for income-tax purposes, whereby the parent and subsidiary SPV would be treated as one assessee. This is to tackle financial distortions that arise from fiscal Ringfencing, whereby some SPVs could suffer losses in the initial years of investment, whereas others or their parents could be in profit.
Besides, the association has sought an extension of the sunset date of section 115BAB of the Income Tax Act, 1961. The said provision provides a 15 percent corporate tax rate to new manufacturing companies, including those in power generation. Further, the same on extension of sunset to March 31, 2026, will give time for the commissioning of projects delayed by disruptions like the COVID-19 pandemic and subsequent economic slowdowns.
GST Reforms for Solar Power Generating Systems
On the GST front, NSEFI has sought changes in the valuation mechanism for Solar Power Generating Systems. Following a recent government decision, wherein the GST rate for goods was increased from 5 percent to 12 percent, the effective rate rose significantly. Reducing the GST rate for goods back to 5 percent, which NSEFI recommended rationalization of the valuation ratio, should make the effective rate more or less at 6.95 percent, hence reducing financial burdens on solar projects.
Apart from this, NSEFI has also called for a concessional GST rate of 5 percent on all goods and services used in the development of Pumped Storage Projects. It is estimated that this reduction can bring down costs by 10 percent which may further reduce PSP tariffs by about 0.60 INR/kWh, which will be important to help inflation-free, fixed tariff Renewable Energy with Round-The-Clock capabilities for 25 years or more.
Our Strategy and Expected Impact Ends?
These strategic recommendations by NSEFI abide by paradigm specificity to the problems faced by the renewable energy sector in India. The roadmap mentions their action plan aimed at tax and GST reforms; through this, NSEFI has laid down plans where it is quite proactive in attempting to make the climate more conducive toward investments and an expansion of clean energy initiatives. This may give an impetus to the execution of key policy decisions within the successful execution of the Union Budget and turn out to be transformative in the process of sustainable energy development.
In a nutshell, NSEFI’s fiscal advocacy outlines a strategy that has an eye on sharpening India’s renewable energy landscape amidst evolving economic dynamics. Amidst the waiting by stakeholders for the Union Budget 2024-25, these proposals underline this sector’s resilience and potential to contribute significantly towards the attainment of energy transition goals for India.
Hence, this niche approach by NSEFI has once again provided it with a commitment to not only take on complex regulatory landscapes and continue to build an ecosystem that helps in nurturing sustainable energy investments but also shapes the way toward a greener and more resilient energy future for India.