Green hydrogen, electrolysers and battery energy storage systems are likely to get cheaper, as the two-day goods and services tax council meeting gets underway in New Delhi on September 3, with an overhaul of the GST regime on the cards.
The council, which is chaired by finance minister Nirmala Sitharaman and has ministerial representatives from all states, will take up a proposal to do away with 12 percent and 28 percent slabs and shift items to 5, 18 and 40 percent brackets.
Green hydrogen and electrolysers are taxed at 18 percent, which will likely be lowered to 5 percent, two government officials told Moneycontrol.
“In June the GST fitment committee had recommended the same and the council in its ongoing meeting is likely to clear it,” one of the officials said on condition of anonymity.
Besides, the GST on battery storage is also likely to be slashed to 5 percent. Currently, there is a disparity in the tax structure of batteries. The GST for lithium-ion batteries is 18 percent but others such as lead acid, sodium and flow batteries are taxed at 28 percent.
On the other hand, for electric vehicles (EVs), the GST for batteries is already at 5 percent.
Tax reduction in green hydrogen, its derivatives and equipment has been a long-standing demand of the industry ever since the cabinet approved the National Green Hydrogen Mission (NGHM) in January 2023.
Also read: Reliance is building a mega solar park in India to fuel its new energy plans.
“The GST reduction will make the cost of green hydrogen in India the most competitive globally and hence, give a boost to the Central government’s NGHM which has so far has seen sluggish growth due to the high costs,” said a senior executive of a leading private firm who has committed to invest in green hydrogen and its derivatives.
The India Energy Storage Alliance (IESA) has been asking battery energy storage systems (BESS) irrespective of the technology should be taxed uniformly at 5 percent like electric vehicles to support the emerging sector.
India is looking to rapidly expand BESS to make renewable energy available round-the-clock, vital for manufacturing activities as well as upcoming data centres.
The government in June also announced an additional viability gap funding (VGF) worth Rs 5,400 crore for developing 30 gigawatt hour (GWh) of BESS. This will be in addition to the incentive worth Rs 3,700 crore under which 13.2 GWh of BESS is being implemented.
Higher tax on coal?
While the council is also considering reducing the tax for solar panels and windmill components from the current 12 percent to 5 percent, it could increase the levy on coal to 18 percent from 5 percent to make up for the revenue loss.
Reduced tax on clean energy products could attract more investments from players such as Reliance Industries, Adani Group, Tata Power, NTPC Ltd, Waaree Energies and ReNew while making room for new players.
“If GST is reduced in the renewable sector, it will also solve the problem of unsigned power purchase agreements, as discoms would get the confidence of even lower tariffs,” the second official said.
As for coal, the impact of higher tax will be somewhat offset by the removal of the compensation cess, which expires March 31, the official said.
At present, the 5 percent GST and the compensation on coal amount to an effective rate of 15–40 percent, depending on the grade of coal.
In, India crossed a milestone with 50 percent of its total installed electricity capacity coming from non-fossil fuel sources, accomplishing the target five years ahead of the plan. Non-fossil fuel sources now comprise 242.78 GW of total 484.82 GW installed capacity.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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