The Indian renewable energy sector has received a major boost with the government’s recent decision to lower Goods and Services Tax (GST) rates on renewable energy devices. Under the new regime, solar panels, systems, and related components will now attract just 5% GST, down from the earlier 12%. The new framework taxes goods (70%) at 5% while services continue to be taxed at 18%, bringing the overall effective GST rate down from ~13.8% to ~8.9%.
This move is expected to significantly reshape the renewable energy landscape, making clean energy adoption more viable and accelerating India’s transition towards sustainability.
1. Lower Upfront Costs
By cutting GST on solar equipment and related goods, the projected reduction in overall project costs ranges between 10% and 15%. This translates into an effective GST decline from around 13.8% to approximately 8.9%, saving nearly 5 percentage points on solar system expenses, particularly significant for residential and MSME consumers.
2. Boost to Residential & C&I Solar Adoption
The residential and commercial & industrial (C&I) segments—especially micro, small, and medium enterprises (MSMEs)—stand to benefit greatly. These segments were previously disadvantaged as they bore the entire tax burden without the ability to claim input tax credits.
Delhi’s rooftop solar boom is a telling example: over 10,000 solar connections, producing 220 MWp, have already translated into ₹160 crore annual savings for consumers. With lower GST improving affordability, adoption in similar residential and MSME clusters is likely to accelerate.
Industry Viewpoints
“The decision by the GST Council to reduce the GST rate on solar components from 12% to 5% marks a pivotal step in accelerating India’s clean-energy transition. This significant reform greatly increases the accessibility of solar installations for households, businesses, and farmers across the country. We believe this tax break will not only boost energy security and encourage new project pipelines but also contribute meaningfully to India’s climate action commitments and its global responsibility to combat climate change. I commend the Council’s vision and urge swift implementation so that the industry can leverage this momentum for a greener, more climate-resilient future.”
Mr. Gautam Mohanka, Director, Gautam Solar
“Reducing GST rates on renewable energy components by GST Council is a transformative step for the sector. By lowering the cost of solar parts, it eases barriers for both established developers and emerging players. More importantly, it makes clean energy more accessible while strengthening India’s solar manufacturing ecosystem by channeling demand into domestic supply chains and creating new avenues for employment across the value chain”
Hiten Parekh, President – Global Sales, GREW Solar
“GST Council has taken a historic step to reduce taxes on renewable energy components to 5% from 12%. This move not only brings down the cost of solar and clean energy solutions but also energizes the entire ecosystem – manufacturers, developers, and end users alike. It will also help in India’s clean energy momentum and make sustainable solutions more accessible to millions.”
Mr. Dhruv Sharma, CEO, Jupiter International Limited
“Great news for the Renewable Energy sector as 𝗚𝗦𝗧 𝗼𝗻 𝗿𝗲𝗻𝗲𝘄𝗮𝗯𝗹𝗲 𝗲𝗻𝗲𝗿𝗴𝘆 𝘀𝘆𝘀𝘁𝗲𝗺𝘀 𝗵𝗮𝘀 𝗯𝗲𝗲𝗻 𝗿𝗲𝗱𝘂𝗰𝗲𝗱 𝗳𝗿𝗼𝗺 𝟭𝟮% 𝘁𝗼 𝟱%. This will make solar more affordable, accelerate adoption, and strengthen India’s clean energy mission”
Renewable Energy Association of Rajasthan (REAR)
“We welcome the GST Council’s progressive decision, which brings greater clarity and efficiency to the power sector. As an integrated energy company with a strong presence in both transitional and renewable energy generation, we believe this step will not only ease operations across the value chain but also strengthen India’s transition towards sustainable energy”
Ratul Puri – Chairman, Hindustan Power
3. Supports Domestic Manufacturing
The reduction in tax on renewable energy goods also supports the government’s Make in India initiative. By lowering costs for domestically manufactured modules, inverters, and other photovoltaic components, the policy reduces reliance on imports and strengthens the competitiveness of Indian manufacturers.
With 100 GW of module manufacturing capacity already in place and the ₹19,500 crore PLI scheme incentivising expansion, this GST reform will enhance India’s position as a global solar manufacturing hub.
4. Renewables Gain Edge as Thermal Tariffs Rise
In parallel, the duty on coal has been increased to 18%, raising electricity costs for thermal power plants. Given that around 73% of India’s electricity still comes from coal—and studies show that by 2025, up to 85% of coal-fired plants will be costlier than equivalent renewable alternatives—this tax shift tilts the economics heavily in favour of clean power.
5. Beyond Solar: BESS and Green Hydrogen Gain Fresh Momentum
Battery Energy Storage Systems (BESS): Strengthening Grid Reliability
India’s renewable capacity has crossed 190 GW, but intermittency remains a challenge. Pairing renewables with storage is essential to ensure round-the-clock supply.
- GST Effect: Lower costs for solar make renewable-plus-storage projects more competitive. Even a 3–4% reduction in solar tariffs improves the viability of pairing with lithium-ion or flow batteries.
- Growth Outlook: The Central Electricity Authority (CEA) estimates India will need 27 GW / 108 GWh of BESS by 2030. Combined with the ₹3,760 crore VGF scheme for storage, the GST cut could accelerate deployments.
Green Hydrogen: The Next Frontier
Green hydrogen (GH2), produced by electrolysing water with renewable electricity, is central to decarbonising hard-to-abate sectors.
- Cost Advantage: Currently, GH2 costs $3.5–4.5/kg, compared to $1–1.5/kg for grey hydrogen. With cheaper renewable inputs, costs could drop to $2/kg by 2030, aligning with the government’s National Green Hydrogen Mission.
- Industrial & Export Opportunity: India consumes 6 million tonnes of grey hydrogen annually. Transitioning to green hydrogen would unlock a multi-billion-dollar domestic market, while also positioning India as a competitive exporter to Europe and Asia, where demand is surging.
Synergies for the Future
- Solar + BESS enables time-shifting of cheap daytime power to evening peak demand.
- Stable Renewable Power ensures efficient utilisation of electrolysers for hydrogen production.
- Cheaper Hydrogen creates new demand centres for renewables, encouraging more capacity additions.
Together, they form a self-reinforcing ecosystem pushing India towards its 500 GW renewable target by 2030 and net-zero by 2070.
Conclusion
The revised GST structure is more than just a tax reform—it is a strategic lever to accelerate India’s clean energy transition. By lowering solar costs, boosting adoption in residential and MSME sectors, strengthening domestic manufacturing, and making coal-based power less competitive, the government has set the stage for rapid renewable growth.
Crucially, the ripple effects extend beyond solar, opening up opportunities in energy storage and green hydrogen, two technologies that will define the future of firm and dispatchable renewable energy. With industry voices like Gautam Solar and Jupiter International Limited underscoring the urgency and opportunity, and with economics shifting decisively in favour of clean power, India’s journey toward energy independence and sustainability has gained fresh momentum.