What is the effect of Accelerated Depreciation (AD)?
- Accelerated Depreciation is a policy by government to promote the investment in a specific industry.
- This drastically reduces the Profit Before Tax (PBT) in P&L Accounts for the first 2 to 4 years of operation and thereby makes the PAT negative. This negative figure of PAT is then reflected in adjustment of losses for next 7 – 10 years of P&L Accounts. So AD is helping in reducing the effect of Tax on Profit and helps the investor to recover his investment because of reduced payback period and start making pure profits in just 3 – 4 years of operation.
- AD also makes direct effect in the Tariff. If AD is availed then the applicable tariff is also reduced by the utility to the extent of few paise.Example: The latest tariff order of the Gujarat declares the Solar PV Tariff without AD as Rs 10.37 per unitand with AD as Rs 9.28 per unit
- Whenever AD is applicable project developer can’t get the benefits of GBI (Grid Based Incentive).
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