The recent Goods and Services Tax (GST) rationalisation is set to accelerate the country’s clean energy transition. The reduction of GST on renewable energy (RE) equipment from 12% to 5% is expected to lower project costs significantly, leading to a 10-paise per unit drop in solar power generation costs and a ₹15-17 paise per unit reduction in wind power costs.
Lower Capital Costs and Competitive Tariffs Ahead
According to Girishkumar Kadam, Senior Vice President and Group Head at ICRA Ltd, the revised GST rates for solar PV modules and wind turbine generators will cut capital costs for solar and wind projects by 5%. This benefit will likely reflect in upcoming tariff bids, reducing the cost of power purchase for distribution companies and making renewable energy more competitive. Industry executives view this as a strong government signal of commitment to clean energy. The lower GST rate not only reduces project costs but also accelerates capacity addition, helping India meet its ambitious renewable energy targets.
Stronger Investor Confidence and Consumer Benefits
“The change sends a strong signal to investors, improving financial viability and attractiveness of the RE sector,” said Amit Paithankar, CEO and Whole-Time Director, Waaree Energies Ltd. He added that the overall cost of solar modules will fall, and Waaree plans to pass these benefits to customers. Although the actual price cut depends on project specifications and configurations, buyers can expect a tangible decrease in module prices, further boosting solar adoption. Beyond solar, the rationalisation will also enhance financial viability for wind, battery storage, and green hydrogen solutions, accelerating their adoption in both industrial and household sectors.
Short-Term Challenges Amid Long-Term Gains
While the move is widely positive, it brings short-term complexities. Developers of projects awarded before the rate change may need to renegotiate power purchase agreements (PPAs) under the ‘Change in Law’ clause. Additionally, accumulated Input Tax Credit (ITC) on capital goods could cause a one-time working capital blockage. However, industry experts believe these hurdles will be temporary, especially as the government focuses on faster ITC refunds.
Impact on Traditional Energy and Tax Clarity for RE Projects
The GST Council has also increased GST on coal from 5% plus ₹400/ton cess to 18%, and oil and gas exploration services from 12% to 18%, raising operational costs for traditional energy producers and nudging a shift toward cleaner alternatives, said Manoj Mishra, Partner at Grant Thornton Bharat LLP.
Equally important is the resolution of the long-disputed 70:30 valuation rule for EPC contracts, which had caused compliance issues and litigation in the RE sector. “By providing clarity on taxation and valuation, the Council has enhanced cost competitiveness, reduced capital intensity, and strengthened investor confidence,” Mishra added.
Additional Tax Cuts for Green Mobility
The GST Council has kept the GST on electric vehicles (EVs) unchanged at 5% but lowered it for fuel-cell vehicles to 5% from 12%, encouraging green hydrogen-powered transport. It has maintained the rate on lithium-ion batteries at 18% while cutting the rate on non-lithium batteries like lead-acid and sodium-ion from 28% to 18%, making energy storage solutions more affordable.
Key Takeaway
As reported by business-standard.com, the GST revamp is more than a tax change—it is a strategic push toward energy transition, improving financial viability, boosting investor confidence, and making renewable energy more affordable for consumers.
