GST on Solar Power Systems In India reduced to 5% from 18% proposed earlier

India’s most effective tax reform is taking shape as Government plans to introduce Goods and Services Tax(GST) in July. It’s an indirect tax on manufacture, sale and consumption of goods and services to replace taxes levied by separate governments. As far as solar industry is concerned GST directly applies to products such as PV modules and battery inverter systems. Market experts are estimating the upcoming rate tax on solar modules to be 5 percent. However, a report last week proposed tax rate on PV modules around 18 percent which caused concerns in the market.

GST impact on Solar:

A total rise of 18% tax rates for solar modules from a present effective rate of zero was proposed earlier (report by Bridge to India ). This tax hike might have resulted in halting of as much as 10 gigawatt(GW) ongoing utility scale solar power projects. Luckily, the Goods and Service Tax (GST) Council decided to levy only 5% tax on solar panels instead of the 18% proposed earlier.

  • This new tax reform is likely to raise overall project capital costs by 4%.
  • Revised rate structure will not have any material negative impact on the industry and will allow project developers to proceed with construction.
  • MNRE still needs to play a hands-on advisory role for all affected entities to ensure smooth transition for the industry.

Additionally, this new tax regime will also result in effective taxes to go up from zero to 3% on engineering and construction services. An official clarification in this regard will be issued on June 3rd when the GST council meets next. Moreover, the proposed clarification is critical to ensure that duties are lower on solar power equipment.

To conclude, how these upcoming GST taxation norms are going to pan out for India’s solar sector is still unseen. Click here to read the complete story from Bridge To India.

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