The reduction of goods and services taxes (GST) on renewable energy devices and components from 12% to 5% will give a leg up to India’s goal of having 500 GW of non-fossil fuel-based electricity generation capacity by 2030. But, any reduction in input costs could only deepen the issue of inverted taxation, industry stakeholders said.
Inverted taxation (inverted duty structure) occurs when the tax rate on inputs used to produce goods or services is greater than the tax rate on the finished output. This discrepancy can result in the accumulation of excess input tax credit (ITC), causing higher tax burdens for businesses, which sometimes may increase consumer prices.
Ankit Hakhu, Director, Crisil said projects that are yet to commence renewable energy construction will see a 4-7% decrease in overall cost, while return on equity for developers would improve 100-200 basis points. “Such a lowering of capital cost enhances the competitiveness of renewable energy and supports India’s clean-energy transition. That said, any increase in input costs can pose a risk to these estimates,” he said.
Also read: Higher GST on coal unlikely to negatively impact electricity tariffs in India.
The Union government, in a statement, post the GST announcement said these goods already faced inverted duty structure. “While reducing the GST rate to 5% will deepen inversion, mechanism for refund arising out of inverted duty structure is available. In addition, process reforms will ensure expedited refunds. The objective is to promote renewable energy goods,” the finance ministry said.
Manufacturers and developers can claim Input Tax Credit (ITC), which is the tax paid on purchases for the business, as deduction at the time of paying tax on output tax.
Vinay Rustagi, Chief Business Officer, Premier Energies, a key integrated solar energy equipment manufacturer said the industry is hopeful that the steps taken to reduce the impact of inverted duty structure with measures like provisional refunds will help resolve the issue.
Amit Paithankar, CEO and whole-time Director, Waaree Energies Limited, also said the new rate may temporarily increase the issue of inverted taxation. “But, we are confident that the government’s focus on faster ITC refunds will help address this. Overall, these GST reforms will reduce the cost of green power for consumers, strengthen the domestic manufacturing value chain, create jobs, and promote energy independence,” he said.
The biggest beneficiaries of the GST reduction, according to Paithankar and Rustagi, will be the rooftop solar segment, giving a boost to PM Surya Ghar Muft Bijli Yojana; as well as the commercial and industrial (C&I) sector, which is increasingly lapping up decarbonisation solutions to meet its own sustainability goals and achieve cost savings.
Gyanesh Chaudhary, Chairman and Managing Director, Vikram Solar said lower taxes will decrease project costs and will accelerate solar adoption across sectors, while bringing clean energy closer to millions of homes and businesses. “Equally significant is the reduction in tax on non-lithium-ion batteries from 28% to 18%. As India increases its renewable energy generation, building scalable, long-duration energy storage solutions is critical for grid stability and round-the-clock power,” he said.
The government’s move to reduce GST will directly help reduce the overall cost of solar modules, according to Paithankar. “Waaree is committed to passing on these benefits to customers, which will make our products more competitive in the market. While the exact reduction will depend on project specifications and configurations, customers can expect a tangible decrease in module prices, further strengthening the case for solar adoption,” he said.
The items in the sector for which GST has to been slashed from 12% to 5% include bio-gas plants, solar power-based devices, solar power generators, wind mills, wind operated electricity generator, waste to energy plants and devices, solar lantern, solar lamp, solar cookers, ocean waves and tidal waves energy devices and plants, solar cells.
The reduced taxes will come into effect from September 22 this year.
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