Renewable Energy industry sees boost to domestic manufacturing, lower tariffs with GST reductions 

The GST Council’s recommendation to reduce the taxation rate on renewable energy devices, relating to solar, wind and biogas, and on parts required to manufacture them, from 12% to 5% has been welcomed by the industry as a step towards spurring domestic manufacturing by easing capital expenditures. Furthermore, industry associations stipulate this may translate to potentially lower tariffs for consumers.  

A conducive environment to manufacture 

Speaking to The Hindu, Subrahmanyam Pulipaka, CEO at the industry body National Solar Energy Federation of India (NSEFI) articulated the move as a “positive step” and adhering to a long-standing request of the industry for a return to status quo. For perspective, the GST on critical components of solar projects was hiked from 5% to 12% following the 45^th Council Meeting in 2021. With the latest return to status quo, Mr. Pulipaka observed, “The effective tax rate would be around 9% from the existing approx. 14%” Solar projects are taxed at a 70:30 ratio, wherein the greater share accounts for procurement costs and those towards capital expenditures, with the latter accounting for services which would continue to be taxed at 18%.  

The CEO further reflected about an increased scope with the government’s mandate for mandatory use of India-made solar cells in panels. Companies have been accorded a June 2026 deadline to meet the criteria to continue being eligible to participate in government procurement programmes. “It (the tax revision) translates to on one hand increasing domestic manufacturing share in installations every year, and with the rationalisation it offers a conducive way of looking at the (manufacturing) ecosystem.”  

Cost reductions  

Manish Singh, Secretary General at the Indian Wind Energy Association (IEWA) held the reduced taxation on the 70% component would translate to lower capital expenditures, effectively implying that the cost of producing energy would reduce. However, Mr. Singh noted that it would be upon the discoms to pass the newly received cushion to the final consumer.  

The Secretary General further stated that this would also be beneficial to companies borrowing money to institute projects. “For example, if they were borrowing some ‘X’ money to implement 1 MW of wind turbine, that would now stand reduced by 7% (with taxation reduced from 12% to 5%),” he stated, adding, “Thus, they would have to borrow lesser money for capital expenditures and pay less money as interest”.  

Industry optimistic  

The reduction in tax rates has also been the subject of much enthusiasm for companies operating in the realm.  

Ranjit Kulkarni, Vice President and General Manager of the Energy and Sustainability Solutions at Honeywell India welcomed the move. He told The Hindu, “High costs have always been one of the biggest hurdles to wider adoption of clean technologies.” According to him, the reduction “boosts manufacturing, signals policy stability and aligns with ESG goals – building investor confidence in India’s renewable energy sector.”  

Other than the reduction in GST on equipment and manufacturing equipment, the GST Council also recommended terminating compensation cess on coal and merging it into a higher slab of 18%. Prior to the rationalisation, coal attracted 5% GST plus compensation cess of ₹400/ton. Sumant Sinha, founder of the clean energy providing company ReNew, observed the move would help bring down the costs of thermal power. Reflecting on the larger paradigm, he stated, “Broader rationalisation will further stimulate domestic consumption and encourage export sectors.”