Budget 2022: Govt focus on energy transition and clean energy

In light of India's commitment to the COP26 Glasgow summit, the Union Budget 2022 has focused on promoting the use of cleaner energy alternatives. 

Though there are no specific policy announcements for the oil and gas sector, various rationalisation measures are proposed with respect to customs duty rates, simplification of procedures relating to claiming current customs duty or exemptions and various conditions relating to obtaining Input Tax credit ('ITC') under GST regulations. 

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Certain key changes in customs and GST regulations are:

• Exemption from Basic Customs Duty ('BCD) for imports for petroleum operations has been restricted to specified list of goods
• Procedural conditions for availing aforesaid exemptions have been simplified by removing the requirement of producing a certificate from Directorate General of Hydrocarbons;
• Exemption from BCD for raw material imports for manufacture of goods required for offshore operations has been withdrawn with effect from April 1, 2023
• Increase in BCD rates has been proposed for goods required for setting up crude petroleum refinery and LNG re-gasification plant; and
• To promote blending of ethanol, methanol and bio-diesel, additional basic excise duty of Rs 2 per litre will be levied with effect from October 1, 2022, on unblended petrol and diesel.

Further, additional restrictions have been introduced for availing Input Tax Credit ('ITC') in certain circumstances, which would require a detailed analysis of the supply chain by the oil and gas companies. 

Some of these circumstances include continued default in payment of tax by vendor, difference between tax filing and tax payment amounts of vendor, availment of excess ITC by vendors.

No corporate tax concessions/benefits/incentives have been granted for Research & Development and technological upgradation for the sector. 

To their merit, there is no increase in the levy of corporate tax. In accordance with the expectations, the sunset date for commencement of manufacture or production for new manufacturing companies has been extended to March 31, 2024, to avail the concessional tax rate of 15%. 

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Similarly, the sunset date for incorporating startups has been extended from March 31, 2022, to March 31, 2023, to claim tax holidays by such startups. 

Such extensions will incentivise new manufacturing companies and startups to make future investments within the extended time limit to obtain tax benefits, which in turn would optimise the overall cost in the supply chain.

The Budget 2022 is growth-oriented with focus on 'Make in India' or 'Atmanirbhar Bharat' by rationalising custom duty exemptions and procedures and incentivising new manufacturing companies and startups.

(The author is Partner and Infrastructure Leader, EY India.)

(Hiten Sutar tax professionals at EY also contributed to this article.)