Solar and wind energy equipment, including modules and cells, along with biogas plants, are among the items that will now attract a lower goods and services tax of 5%, down from 12%. In contrast, coal and lignite will see their GST rate raised to 18% from the current 5%.
The move is expected to give a further push to the green energy sector and bring down tariffs in the segment, thereby encouraging wider adoption by states and industry.
According to Rishabh Jain, Senior Programme Lead at CEEW, a reduction in GST rates on clean energy technologies such as solar and wind can significantly lower project costs, improving the competitiveness of renewable power.
Since electricity supply is exempt from GST, developers cannot claim input tax credit, which means the GST paid on equipment and services is effectively absorbed as a cost. Lower project costs, Jain added, would make clean energy more attractive for discoms as well as commercial and residential consumers.
The GST cut could reduce the cost of solar power by 10% to 15%, making it considerably more affordable. With the government keen to spur demand for domestic equipment, the lower tax rates may also accelerate deployment, said another industry official.
Greater capacity additions would, in turn, stimulate demand for domestic manufacturing and generate employment, complementing central government initiatives such as the PLI scheme, Jain noted.
However, analysts pointed out that there will be no compensation cess on coal, which could lead to either higher or lower costs depending on the grade of coal being used.
