Section 25 in Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014
25. Tax on Return on Equity.
(1)The base rate of return on equity as allowed by the Commission under Regulation 24 shall be grossed up with the effective tax rate of the respective financial year. For this purpose, the effective tax rate shall be considered on the basis of actual tax paid in the respect of the financial year in line with the provisions of the relevant Finance Acts by the concerned generating company or the transmission licensee, as the case may be. The actual tax income on other income stream (i.e., income of non generation or non transmission business, as the case may be) shall not be considered for the calculation of "effective tax rate".(2)Rate of return on equity shall be rounded off to three decimal places and shall be computed as per the formula given below:Rate of pre-tax return on equity = Base rate / (1-t)Where "t" is the effective tax rate in accordance with Clause (1) of this regulation and shall be calculated at the beginning of every financial year based on the estimated profit and tax to be paid estimated in line with the provisions of the relevant Finance Act applicable for that financial year to the company on pro-rata basis by excluding the income of non-generation or non-transmission business, as the case may be, and the corresponding tax thereon. In case of generating company or transmission licensee paying Minimum Alternate Tax (MAT), "t" shall be considered as MAT rate including surcharge and cess.Illustration. - (i) In case of the generating company or the transmission licensee paying Minimum Alternate Tax (MAT) @ 20.96% including surcharge and cess:Rate of return on equity = 15.50/(1-0.2096) = 19.610%(ii)In case of generating company or the transmission licensee paying normal corporate tax including surcharge and cess:(a)Estimated Gross Income from generation or transmission business for FY 2014-15 is Rs 1000 crore.(b)Estimated Advance Tax for the year on above is Rs 240 crore.(c)Effective Tax Rate for the year 2014-15 = Rs 240 Crore/Rs 1000 Crore = 24%(d)Rate of return on equity = 15.50/ (1-0.24) = 20.395%(3)The generating company or the transmission licensee, as the case may be, shall true up the grossed up rate of return on equity at the end of every financial year based on actual tax paid together with any additional tax demand including interest thereon, duly adjusted for any refund of tax including interest received from the income tax authorities pertaining to the tariff period 2014-15 to 2018-19 on actual gross income of any financial year. However, penalty, if any, arising on account of delay in deposit or short deposit of tax amount shall not be claimed by the generating company or the transmission licensee as the case may be. Any under-recovery or over-recovery of grossed up rate on return on equity after truing up, shall be recovered or refunded to beneficiaries or the long term transmission customers/DICs as the case may be on year to year basis.
