Section 25(2) in Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014
(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%
