What is the effect of Accelerated Depreciation (AD)?

  1. Accelerated Depreciation is a policy by government to promote the investment in a specific industry.
  2. 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.
  3. 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
  4. Whenever AD is applicable project developer can’t get the benefits of GBI (Grid Based Incentive).

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