GST on Solar

India is set to become the rising solar power in the world. The country has installed an impressive 5,525.98 MW in 2016-17 according to MNRE. India is poised to become the third largest solar market globally, with its solar capacity to touch 18.7 GW by 2017. The solar industry in India has witnessed record-breaking low prices, which has enabled the country to reach new heights.

However, with the implementation of GST (Goods & Services Tax) in India from July 1^st, there has been a lot of confusion regarding the effective rate of tax on solar goods and equipment. IT is true that solar prices have reached new low levels in India, giving an impression that the industry could strive without any external support. However, the government of India is aware of the price-sensitive Indian market and promptly revised the rate of tax on solar modules from the earlier announced 18%, to 5% currently.

Comparing this to earlier times when solar modules were exempt from excise duty and state taxes, an imposition of 18% tax would have spiked the overall cost of the project as modules itself account for 50% of the total project cost. Though solar does not need any subsidies anymore thanks to the falling tariff, a lower rate of tax will still act as an incentive for the people.

All solar equipments and its parts would attract 5% GST only https://t.co/Dqcq2IctOQ

— Dr Hasmukh Adhia (@adhia03) May 28, 2017

However, there is confusion amongst people about the tax slabs on different solar equipment because nothing was stated very clearly about them. It takes time to adjust to anything new that comes into existence and so will be the case with GST.

I had earlier written that GST may be a huge dampener for the Indian Solar Industry, given the expected rate of tax was between 12% and 18%. However, the government promptly revised this rate to 5% which is laudable. The total project cost is expected to rise by about 3%-4% in the overall process. But the implementation of GST is expected to smoothen operational processes and reduce corruption in India. As such, solar developers should not be worried about a reasonable hike of 5% in my view.

I am also in the process of finding individual tax rates on various solar equipment. Interested readers can follow me here and mention their views and ideas as a comment to this article.