Deduction u/s. 80 for solar power generation

Dear Sir,

My Clients Being Pvt. Ltd. wants to set a Solar Power generation unit in the FY 2011-2012. I want to know that whether he will be able to claim deduction u/s. 80 or others. What will be the tax impact ?.

Please also guide the MAT u/s. 115JB whether applicable or not ?


Section 80IA(4) is amended w.e.f. A.Y. 2012-13. At present, an undertaking which is set up for the generation or generation and distribution of power or transmission or distribution by laying a net work of new lines or for substantial renovation and modernisation of such network on or before 31-3-2011 is entitled to tax holiday as specified in section 80IA. By amendment of this section, the time limit for setting up such an undertaking is extended to 31-3-2012. so you can avail the exemption benefit for the year 2011-12

Section 80-IA of the Income-Tax Act, 1961 provides fillip to power generating companies and the outcome of the same is borne by the fact that we occupy globally fourth or fifth position in generation of wind energy. This could be achieved because of the tax incentives and liberal depreciation allowance. The twin tax incentives were almost like amnesty scheme by which 80 per cent of the investment is protected from tax levy because of depreciation and the income generated after recovery of investment was also exempt from tax for a continuous period of 10 financial years out of 15 years at the choice of the taxpayer. WITHDRAWAL OF EXEMPTION The tax exemption was withdrawn in the Finance Act, 2011 and any undertaking generating electricity will not be eligible for tax exemption in respect of income where it begins operation after March 31, 2012. However, the original investment continues to remain eligible for 80 per cent tax protection by way of depreciation. No reasons were given for withdrawal of exemption inspite of persisting deficit in power generation. Even when the exemption was granted with regard to income, the controversy in tax administration revolved around many technical issues. Some of the issues are (a) the year of commencement of activity cannot be treated as ‘initial assessment year' and only when the taxpayer makes a claim for deduction, that year is to be taken as the ‘initial assessment year' for determining the number of years for which the deduction is permissible (Poonawalla Estate Stud & Agro Farm (P) Ltd v. Asstt. CIT (48 DTR (Pune) (Trib) 210)); (b) the claim of enhanced depreciation as reflected in the return filed before the due date under Section 139(1) supported by depreciation claim of in the books of account tantamounts to the exercise of option for enhanced depreciation (K.K.S.K.Leather Processors (P) Ltd v. ITO (2010) 38 DTR (Chennai) (Trib) 182); and (c) the deduction under Section 80-IA is to be allowed by treating the undertaking on standalone basis. Depreciation including depreciation of the earlier years attributable to power generating unit is to be adjusted against its income on notional basis even if they were adjusted against other incomes of the taxpayer (Hyderabad Chemicals Supplies Ltd v. Asstt. CIT (2011) 53 DTR (Hyd.)(Trib) 371). In effect, the tax incentive is given only after the entire capital cost is offset against income of the power generating unit; and (d) the losses pertaining to earlier years preceding the year of opting the claim of deduction under section 80-IA is not to be adjusted for computing the deduction. (Mohan Breweries & Distilleries Ltd v. CIT (2008) 23 SOT 32 (Chennai)).

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@ Satish Kumar 

Thank you very much 

finance advisory


sir, kindly tell me the tax/ dep. benefits available to a co. if it starts solar projects after 31.3.12.....
and also is their any scheme in any BANKS/FIs for promotion of solar projects.....hope to get positive response from ur side :)
Audit & Taxation

is it Solar Power generation unit have to pay tax u/s 115jb ? MAT


Is Deduction u/s 80IA is still available for solor power generation units?


Benefits for the Investors

  • Section 32 of IT act provides Accelerated Depreciation of 80 % of the invested capital to professionals companies with tax liability
    • Investors can set off their tax liability on the taxable income to the tune of 80% in the 1st year, and subsequently 20% in the 2nd year
  • Section 80-IA (sub section 4)of income tax Act, 1961 allows 100% tax waiver on the income generated for any single 10 year period during first 15 years of operational life of a power generation project.
    • This is valid for projects commissioned till 31st March 2014
  • Generation based incentives given by the government - Renewable Energy Certificates (REC) allows investors to gain a yield in the form of incentive currently being traded at average price of Rs 12 per unit of electricity generated by the solar power plant
  • Third Party PPAs with reputed business houses and large industrial groups ( which will be organized by Sai Saburi) allows per unit electricity to be sold at approximately Rs 5 per unit
  • REC + PPAs results in per unit electricity selling rate of approximately Rs 17 per unit
  • With an average generation of 16,00,000 units in 1 year, revenue generation in 1 year will be around Rs 272 Lacs
  • So, Break Even Point (BEP) is around 3-4 years, after which a long & stable income stream is established as solar power plants are deemed FIT & operational for a period of 25 years
  • Solar plants can be commissioned by us in our Solar park within a time frame of 3-6 months
  • Registration with the Ministry of Environment & Forests allows participation in “Certified Emission Reduction” (CER) Credits in the international market

It means units establishing after 2014 shall not be eligible for deduction u/s 80 IA


Article Assistant

sir, kindly tell me the tax / depreciation benefits available to a co. if it starts solar power generation plant after 31st March 2017.

Am confused with

01. Accelerated depreciation under section 32 of the Act -  Is it limited to 40% ?

02. 100% tax waiver on the income generated for any single 10 year period during first 15 years of operational life of a power generation project under section 80-IA  - Is this benefit not available from the FY 2017-18 ?




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