India paved the way for the listing of Indian Railway Finance Corporation Ltd. by granting state-run companies exemption from deferred tax liability.
Provisions related to deferred tax liability shall not apply for seven years with effect from April 1, 2017 for a government company for seven years, the Ministry of Corporate Affairs said in a notification. This exemption will largely benefit Indian Railway Finance Corporation, it said.
The government had identified corporation among three rail public sector units for listing on stock exchanges in the financial year ending March. The company was in a position to file its draft red herring prospectus in December but wanted the tax liability issue to be resolved first, a railway official told BloombergQuint requesting anonymity.
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The corporation, the sole financier of railway projects that sources low-cost funds from the market, faced a deferred tax liability as its depreciation was greater than its profit.
The Company does not pay tax under normal assessment and is subject to Minimum Alternate Tax at 21 percent, said the notification. It has to make provisions for the deferred tax liability at 35 percent. Thus, the company's books are bearing a total tax provision of 56 percent, reducing its net profit. The accumulated deferred tax liability stood at Rs 6,392 crore as of March 31, 2017.
The liability will now get added to the net worth, helping improve its valuation for the IPO, said the notification. Since IRFC can raise debt on its books to the extent of 10 times of its net worth, the exemption will help it raise an additional debt of over Rs 63,000 crore, the notification said.
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