In a major boost to the renewable energy sector, the 56th GST Council, chaired by Finance Minister Nirmala Sitharaman, has approved a significant tax rebate on equipment used in the industry. As part of a broader rationalization of the Goods and Services Tax (GST) structure, the tax rate on renewable energy equipment has been reduced from 12% to 5%.
This move is expected to lower costs, encourage investment, and accelerate the adoption of clean energy across India.
As stated in the news release by the Ministry of Finance, the step will cut down the cost of projects immensely and will propel the Indian clean energy objective by involving solar panels, wind turbines, biogas plants, waste-to-energy, and other elements.
According to Finance Minister Sitharaman
The new tax rates have been in effect since September 22 this year. She also added that the reform will help India to move towards sustainable energy and to invest in green technologies. Prime minister Narendra Modi welcomed the rate reductions as comprehensive reforms that will support households, business and the economy at large.
The Council also expanded the 5% slab to hydrogen fuel cell vehicles (such as buses and trucks), offering a significant boost to the National Green Hydrogen Mission of the government. Green hydrogen is believed to be the fuel of the future in long-distance transportation, and the lowered tax is expected to make such technologies more competitive, reported Moneycontrol.
The relocation also conforms to the intentions of India to realize self-sufficiency in its local production of these parts. It is currently manufacturing 100 GW of solar modules in the country, but some important components, such as wafers and ingots, are highly imported from China. The government will be cutting GST on renewable equipment to increase local supply chains and decrease reliance on imports, as per Mint.
Experts hailed the GST reduction in renewable energy equipment especially, as it will enhance wind, solar, and other green technologies.
Commenting on the reduction of the GST rate on solar products and its impact on the industry, Gautam Mohanka, Director, Gautam Solar, said that “The decision by the GST Council to reduce the GST rate on solar components from 12% to 5% marks a pivotal step in accelerating India’s clean-energy transition. This significant reform greatly increases the accessibility of solar installations for households, businesses, and farmers across the country.”
“Decarbonization of the energy systems in the country is a matter of urgency given the extreme weather conditions happening across the globe, the increasing temperatures, and the unpredictable climate change patterns. He is of the opinion that this financial barrier should be reduced in order to make solar power more affordable and allow it to be adopted more rapidly. Thus, by reducing the direct carbon emissions and decreasing reliance on fossil fuels.”
“In our opinion, this tax cut will increase energy security and stimulate the creation of new project pipelines. It will also play a significant role in the climate action commitments of India and its responsibility to the world to fight climate change. I will applaud the vision of the Council and encourage the Council to move forward as swiftly as possible to get the industry using this momentum to create a more climate-resilient, greener future,” he added.
Expressing his opinion on the recent GST rationalization, Waaree Energies spokesperson Paithankar said, “The recent GST rationalization shows that the government is determined to make India transition to clean energy. The reintroduction of GST on renewable energy devices and equipment to a standard rate of 5 percent will reduce the cost of projects and expedite capacity addition required to achieve clean energy goals in India. It also sends a strong message to the investors and makes the renewable energy sector more financially viable and appealing.”
“This action will lower the price of solar modules to consumers, facilitate the PM Surya Ghar Yojana, enhance the domestic manufacturing value chain, generate employment, and facilitate energy independence. Waaree will ensure that we transfer these benefits to customers, and so our products will be more competitive in the market,” he added.
Speaking of his opinion on the GST rate on the new rates on renewable energy components, Dhaval Popat, Energy Analyst, Choice Institutional Equities, on the effects of GST rationalization on the Energy sector, said, “Firms in these renewable areas will gain meaningfully by the GST reduction—both in terms of cost dynamics, the viability of projects and their competitiveness. We observe, however, that the Indian PV companies are subject to 50 percent US tariffs on solar imports.”
Broader GST Overhaul
The Council also declared a structural reform of GST itself. The previous 12 and 28 percent slabs are gone, and most items are simplified into 5 percent and 18 percent categories. There is left a 40% slab of luxury and sin goods.
GST on coal was raised to 18 percent, and the ₹400/tonne compensation was eliminated. This transition will not make life more expensive for buyers, the Finance Ministry claimed, which means that there will not be a significant effect on electricity prices, reported Mint. Coal remains the main source of power in India, with plans to add 80 GW of capacity based on coal by 2032.
The reforms were also embraced by industry experts who realized how they would influence the energy transition in India.
Ratul Puri, Chairman, Hindustan Power, stated, “While the tax rate on coal has been raised from 5% to 18%, the overall impact will be minor as the existing compensation cess of Rs 400 per tonne has now been subsumed within the GST rate. However, to support the transition from fossil fuels to non-fossil sources, the reduction of GST on renewable sector products from 12% to 5% is truly transformative.”
