May 2017

Tax shocker for the solar industry!

GST council to set 18% Tax Rate for Solar Module!

India’s solar industry was served with a tax shocker with the GST council’s decision to set 18% tax rate for solar modules as compared to present effective rate of zero. In contrast, the GST rate for coal has been lowered to 5 percent as against current rate of 11.69% and most other renewable projects and equipment including wind mills, waste to energy plants, tidal energy plants and bio-gas plants and even solar power based devices or generating systems have been classified under the 5 percent rate bracket.

Till date, most states levy a 5% Value Added Tax (VAT) on solar modules. However, the actual tax rate levied is zero because of waiver on import duty and VAT in many states. Under the new tax structure,

  • the module cost is expected to increase from 5.15% to 18%,

  • inverter cost by 12%

  • and service costs by 3%,

resulting in an overall increase in project cost by 12%. As per Bridge to India report, new rates are expected to adversely impact the ongoing 10 GW utility scale projects.

It was widely expected that the solar modules would be classified under zero or 5% bracket to encourage investment in this sector. However, sharp reduction in equipment costs and solar tariffs seems to have convinced the government that the sector doesn’t need any more financial incentives.

W.e.f 1st July 2017, the cost of solar power plant will increase by 12-13%. Considering the impact GST is expected to have on the solar industry, we suggest you to act fast and get a solar power plant installed before 30th June 2017.

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