In a major move, the Indian government plans to reduce the applicable GST rates on several renewable energy devices and parts from 12 per cent to 5 per cent. These include solar cookers, solar water heaters and systems, fuel cell motor vehicles, including hydrogen vehicles based on fuel cell technology, biogas plants, solar power-based devices, solar power generators, windmills, and wind-operated electricity generators, waste-to-energy plants and devices, solar lanterns and lamps, ocean wave/tidal wave energy devices and plants, and PV cells (assembled or not in modules or made up into panels. The revised GST rates are expected to come into effect on September 22, 2025 (at the time of writing this article).
Industry leaders have unanimously praised the GST reduction on renewable energy equipment and storage solutions, highlighting its potential to accelerate India’s clean energy transition. The reform lowers project costs, boosts affordability for households and businesses, and strengthens domestic manufacturing. It enhances liquidity across the value chain and attracts greater investment. The move also eases working capital pressures and enables more competitive tariffs for consumers and discoms.
The GST reduction across goods (not just for renewable energy) has been implemented in a bid to move from the current four-tiered tax rate structure into a simpler tax regime – with a standard rate of 18 per cent, a merit rate of 5 per cent and a special de-merit rate of 40 per cent for select goods and services. The objective is to boost domestic consumption and provide relief to consumers and industries. Many concur that the reform has come at the back of trade tensions with the US and to cushion the Indian economy against the impact of US tariffs on exports.
Renewable Watch shares the views of industry leaders and the financial impact of this tax reform…
Number game: Financial impact of the reforms
The rationalisation of GST rates will bring down the cost of clean energy projects and make renewable electricity even more affordable. For instance, according to government estimates, the capital cost of a utility-scale solar project, which typically amounts to around Rs 35 million-Rs 40 million per MW, will witness savings of Rs 2 million-Rs 2.5 million per MW. Given this calculation, a 500 MW solar park can save over Rs 1 billion. The reduction in project costs will lower levellised renewable energy tariffs, easing the financial burden of discoms. It is estimated that the GST rate cuts can result in nationwide annual savings of Rs 20 billion-Rs 30 billion in power procurement costs.
Decentralised plants will also experience a cost cut. A typical 3 kW rooftop system is now expected to be cheaper by about Rs 9,000-Rs 10,500 per kW as per a government notification. Meanwhile, a 5 HP solar pump, costing about Rs 250,000, will now be cheaper by nearly Rs 17,500. This can result in savings of about Rs 17.5 billion for a million solar pumps.
Further, module and component costs are expected to reduce by 3-4 per cent with lower GST, enhancing the competitiveness of Indian-made renewable energy equipment.
Overall, given that India plans to add around 300 GW of renewable energy capacity by 2030 (up from the current 242 GW capacity), even a modest 2-3 per cent cost reduction from GST cuts can free up Rs 1 trillion-Rs 1.5 trillion in investment capacity. As each GW of solar project saves about 1.3 million tonnes (mt) of carbon dioxide annually, faster deployment, enabled by GST rationalisation, could avoid an additional 50-70 mt of carbon dioxide emissions per year by 2030 based on government statistics.
Net, net, the GST rate cuts are one of the biggest reforms for the renewable energy sector in recent years, with significant financial impact, and showcase the government’s intent to listen to the concerns of industry stakeholders and boost economic activity.
