Lower GST to drive green push; industry monitors input price shifts
The biggest beneficiaries of the GST reduction will be the rooftop solar segment, giving a boost to PM Surya Ghar Muft Bijli Yojana
The cut in goods and services taxes (GST) on renewable energy devices and components from 12% to 5% will support India’s aim of reaching 500 GW of non-fossil fuel-based electricity generation capacity by 2030. However, any decrease in input costs could worsen the problem of inverted taxation, according to industry stakeholders.
The Union government said in a statement after the GST announcement that these goods already had an inverted duty structure. “While reducing the GST rate to 5% will increase inversion, there is a mechanism for refunds due to the inverted duty structure. Additionally, process reforms will ensure faster refunds. The goal is to support renewable energy goods,” the finance ministry stated.
Inverted taxation, also known as an inverted duty structure, happens when the tax rate on inputs used to make goods or services is higher than the tax rate on the final product. This difference can lead to a build-up of excess input tax credit (ITC) and create higher tax pressures for businesses. As a result, consumer prices may rise.
According to Ankit Hakhu, Director at Crisil, the overall cost of projects that have not yet begun building with renewable energy will decrease by 4-7%. Additionally, he pointed out that developers would see a 100–200 basis point increase in return on equity. “This decrease in capital costs boosts renewable energy’s competitiveness and supports India’s clean energy transition. But these estimates could be threatened by any increase in input costs,” he said.
