Thread by @akhilpachori

Decoding RIL Effective Tax Rate (ETR) @ 3% (Thread 👇)

- RIL ETR at 3.46% of Profit Before Tax (before Exceptional Items). Last year RIL’s ETR was 23.65%. (85.36% lower than previous FY)

- RIL paid only ₹1,722 Cr tax in FY 2020-21 as compared to ₹13,726 Cr in FY 2019-20

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Why Reliance’s ETR was so down and how did it managed to save such huge sum of tax within the legal boundaries.

There are Mainly 3 Reasons as per explanation given by RIL to BusinessLine on it:
1. Loss on Merger with RHUSA
2. SEZ Allowance
3. Carried Forward Losses

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1. Loss on Merger with RHUSA

RIL merged its US subsidiary RHUSA (Reliance Holding USA) with it, and recognized a loss of ₹33,217 Cr on merger. Due to this, there was an increment in deferred tax assets of RIL by ₹8,517 Cr.

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However, information on losses and unabsorbed depreciation of RHUSA was not disclosed,
which indicates RHUSA was possibly a loss making company and it’s losses were allowed to set off
against RIL’s taxable income

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2. SEZ Allowance

The story behind MAT credit is more interesting, Nov 2020 Judgement of ITAT increased MAT Credit by ₹14,882 Cr.

There was an issue put before the tribunal that deduction u/s 10AA for SEZ units should be
based on computation of Taxable Income as per Act

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(where other deductions like depreciation,
investment allowance, etc.) or as per Commercial Profit before any of such deductions. The tribunal
favoured RIL’s contention and allowed tax deduction of its Jamnagar SEZ on Commercial Profit before
any of such deductions and not..

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and not on Post Deduction Taxable Income as per act. Therefore, entire profits from Jamnagar SEZ were tax free, moreover RIL also got the benefit of deductions such as depreciation and investment allowance in its P/L Account. (This is Double Deduction Benefit)

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In previous FY, RIL was about to set off ₹10,455 Cr similarly but it awaited for Tribunal’s Verdict and also booked entire deduction in this FY.

3. Carried Forward Losses

Carried forward losses accumulated to ₹4,261 Cr this year (which were ₹1,984 Cr previous year)

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Following are Taxation Notes of Reliance Industries Limited:

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