Govt Cuts GST on Solar, Wind Energy to Boost Green Adoption

• GST on solar, wind, and biogas equipment cut from 12% to 5%
• Lower costs to drive adoption, capacity expansion, and jobs
• GST on coal and lignite raised from 5% to 18%

The GST (Goods and Services Tax) Council has made announcements regarding changes in the tax regime that will fundamentally re-structure India’s energy sector.

The change in tax rates from the GST Council's announcement will now result in a GST of 5% on solar energy and wind energy equipment, including modules, cells and biogas plants; and coal and lignite will be subject to the highest GST of 18% substantially increasing from 5%.

The government is looking to support the green energy sector by stimulating project costs in the renewable sector with this rejig in the tax. The decrease in tax on solar and wind technologies is expected to push down tariffs, thereby encouraging energy players to invest more in solar and wind energy and adopt it more widely across industry sectors, and utilities of various states.

Rishabh Jain, Senior Program Lead at the Council on Energy, Environment and Water (CEEW), said that as electricity supply is excluded from GST, developers are unable to claim input tax credits, which makes GST on equipment a cost.

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A reduced tax burden could lower prices, making solar more attractive to discoms, businesses, and households by 10–15% if an element of input tax credits is realized.

Experts from the industry are optimistic that the reduction of the tax will also help drive more deployment of renewable energy projects, generate demand for domestic equipment, and align with government incentives for self-reliance, such as schemes related to Production Linked Incentives (PLI).

 Jaiswal also added that there will likely be substantial job growth as increased capacity additions will strengthen the domestic manufacturing ecosystem.

On the flip side, according to analysts there are risks around coal pricing. The GST increase on coal is a concern, only because without a compensation cess, coal prices will remain unpredictable according to the coal grade.