Corporate tax cut to benefit power sector: Icra

New Delhi: The corporate tax cut is a positive development for power sector as it will result in an estimated annual savings of Rs 2,500 crore for the power distribution segment, rating agency Icra said on Monday.

The government on September 20 slashed the income tax rate for companies by almost 10 percentage points to 25.17 per cent and offered a lower rate to 17.01 per cent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs.

"The recent announcement by the government...is a positive development for the power sector, as it would allow power generators with cost plus power purchase agreements (PPAs) to pass on the lower tax benefit to power distribution utilities (discoms)," Icra said in a statement.

As per Icra's estimates, the extent of benefit that would accrue to discoms from power generation and transmission segments (mainly from central and state utilities), would be about Rs 25 billion (Rs 2,500 crore) annually.

"The benefit so accrued to discoms in turn would enable them to lower their cost of supply and hence, reduce the gap between average tariff and cost of power supply by about 3 paise per unit sold at all India level," said Sabyasachi Majumdar, Senior Vice President & Group Head - Corporate ratings, Icra.