Correction Of I-T Anomaly

return assured by the government for the seven fast-track power projects.

This is because the IT Act computes depreciation on a written down method. Wherein if the rate is 30 per cent and the capital cost is Rs 1 lakh, the maximum depreciation would be in the first year.

In the second year, it would be 30 per cent of Rs 70,000, and so on. In the case of a flat rate approach, the total depreciation sum is measured over the life of the capital good and then distributed evenly in each year.

However, the government has now decided to correct this anomaly and align the depreciation provisions in the Income Tax Act with the Electricity Supply Act. In the process, the loophole whereby independent power producers were raking in an extra buck, has been closed.

 

The matter had become a sore point with several power producers rallying with the finance ministry on the issue. The power ministry had despatched a letter in early May indicating that a speedy decision was essential.

In their communication, the power ministry had stated that in an early inter-ministerial meeting the CBDT chairman had indicated his willingness to align the depreciation rates.