NTPC's $1 bn ADB loan faces tax jolt

NEW DELHI: The country’s leading power utility NTPC, which is taking a $1-billion loan from the Asian Development Bank (ADB), will have to pay withholding tax on interest payments for a major portion ($850 million) of the debt.

The revenue department has said the power utility will have to pay withholding tax on interest payments for $850 million, out of the $1-billion loan from ADB. This is because the $850-million component was being arranged by ADB from private commercial banks under its complementary financing scheme.

The power utility will, however, not be required to pay any withholding tax on interest payments for the $150 million being provided by ADB itself. The withholding tax rate depends on the tax treaty that India has with the other country, but is usually in the range of 15-20%.

NTPC, which has drawn up major expansion plans, had sought a clarification from the revenue department. The company proposes to set up power generation capacity of over 22,000 mw during the 11th Plan entailing an investment of about Rs 88,000 crore.

The ADB loan is expected to be used for financing the new projects that the company intends to undertake this fiscal. The company has drawn up plans to invest Rs 12,800 crore in various projects during the current year.

The negotiations for the fresh ADB loan comes after the power major tied up a $300-million loan with a financing agency last year. The public sector power utility has also signed a MoU with ADB for setting up joint venture company to undertake renewable power generation, including wind energy. The JV company will be formed among NTPC, ADB and other strategic investors - both from public and private sectors.

NTPC is assessing potential locations for wind energy generation in association with the Centre for Wind Energy Technology (C-WET), an autonomous R&D institution under the ministry of renewable energy. A 50 mw wind energy plant may be developed on a fast-track basis.