Finance Ministry Plans Riders For Gas Carriers Eyeing Tax Holiday

NEW DELHI: Gas transportation majors like GAIL and RIL that are laying cross-country gas pipeline infrastructure would be required to meet certain conditions to avail of the 10-year tax holiday. These include making available one-third of the total pipeline infrastructure capacity to another entity for use on common carrier basis. The other entity must not be associates of the assessee.

Companies may also have to fulfil some additional conditions to enjoy the tax benefit under section 80-IA of the Income-Tax Act. The finance ministry has sought the petroleum ministry’s suggestions for including additional conditions as eligibility criteria for the tax benefit, a source said. The Central Board of Direct Taxes (CBDT) has powers to prescribe any other additional conditions, he added.

The tax benefits would be extended to projects that have started operating on or after April 1, 2007. Only companies or a consortium of companies registered in India can avail of the benefit. Such entities would also be required to get downstream regulator’s approval, besides being notified by the petroleum ministry, a source said.

The criterion of 33% sharing under common carrier principle is on lines of the stated policy. Most companies, laying new trunk pipelines, would factor-in the guideline.

In the Budget 2007-08, the government had accorded infrastructure status to the business of laying and operating a cross-country natural gas distribution network. Accordingly, a 100% deduction of profit and gains derived by any undertaking from the business of laying and operating a cross-country natural gas distribution network, including pipelines and storage facilities that are an integral part of such network, for 10 years.

The development is significant in the light of recent gas finds by companies like RIL, Cairn, GSPC and ONGC. Some of these companies are planning to lay and operate pipelines from gas source to various points in the country. RIL is planning to lay about 10,000 km of pipelines across the country to market its KG basin gas in the next 5-7 years.

Similarly, transportation major GAIL is all set to invest Rs 20,000 crore to complete the eight new gas pipelines in two phases, targeting full completion by 2011. The proposed move would almost double the GAIL’s existing trunk pipeline network to about 12,000 km.