Decision will enable IRFC to raise additional debt to the extent of over Rs. 63,000 crore
Ministry of Corporate Affairs (MCA) vide its notification dated 5th February 2017 and in exercise of its power under Section 129(6) of the Companies Act, 2013, has exempted the Government Companies which are notified as Public Financial Institution under the Companies Act and registered as NBFC with the Reserve Bank and engaged in the business of Infrastructure Finance Leasing with not less than seventy five per cent of its total revenue being derived from such business with Government Companies / entities owned or controlled by the Government from the provisions of accounting Standard-22 (AS-22) / Indian Accounting Standard-12 (Ind-AS 12) for a period of seven years.
AS-22 / Ind-AS 12 mandates the recognition of / provision for Deferred Tax in the Financial Statements of the Companies for the timing difference in the accounting income and taxable income for items such as different in the depreciation rates as per Income Tax Act and Companies Act.
This exemption is going to largely benefit Indian Railway Finance Corporation (IRFC) which is the dedicated market borrowing arm of the Ministry of Railways meeting predominant portion of the Extra Budgetary Resources (EBR) requirements through financial leasing model. Because of the huge unabsorbed depreciation, the Company does not pay tax under normal assessment and subject to Minimum Alternate Tax (MAT) 21%. Besides, the Company has to make provision for DTL at the rate of 35%. Thus, the Company’s books are bearing a total tax provision of 56% which has led to substantial reduction in the Profit After Tax (PAT) and in turn, inadequate accretion to Reserves and Surplus for which equity infusion has been sought from MOR at regular intervals. The accumulated Deferred Tax Liability is Rs.6392 Crore as on 31.3.2017 which is going to be reversed and will form part of the Net Worth. Besides, the provision for tax will come down to 21% from 56% leading to substantial improvement in Profit After Tax, Earnings per Share and Book Value per share. This is going to improve the valuation of the Company for its maiden IPO. From the Government’s perspective, to the extent of the reversed DTL amount, equity infusion will not be required to be made into IRFC. Since IRFC can raise debt on its books to the extent of 10 times of its net worth, this decision of MCA will enable IRFC to raise additional debt to the extent of over Rs. 63,000 crore.
SBS
