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GST on Solar Power Sector


GST on Solar Power Sector

In India, the Solar Power Sector is a fast-growing mobility industry. The Indian Ministry of New and Renewable Energy (MNRE) aims to encourage investors and promotes sustainable growth of innovative solar projects. The Goods & Services Tax (GST) council has declared 70% of the gross value to be deemed as the value of supply of asserted goods or services at the rate of GST up to 5% from the total project cost, is the material cost involving supplying of solar equipment. The remaining 18% to be paid on 30% of the installation cost.

GST on Solar Panels, Inverters and EPC

As per the declared statement of GST rate on solar power generating projects and other renewable energy projects, has led to an increase of about 10% from the total project cost from the levels before the GST implementation. Before GST, input tax on equipment was largely offset by excise and custom exemptions which were extended to solar energy project developers.

In the case, the nature of work is of Erection, Procurement and Commissioning (EPC) of Solar Generating System which comes under the ambit ‘Works Contract Services’, then the GST would attract 18% tax rate under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%. If a company cases an EPC contract, it must pay 5% GST on up to 70% of the total contract value and pay 18% on 30% of the contract value.

Applicable GST rate and HS code

Solar Products GST Rate in India HS Code
Solar Panels 5% 85414011
Solar inverters 5% 85044090
Solar module mounting structure 18% 73089090
Supply of  solar power plant equipment 5% (equivalent to 70% of the plant cost)

Click here to find GST Rate, HSN Code and SAC Code list

Rate of the Central Tax

The tax rate for renewable energy devices and parts of solar power has been scheduled at 2.5 per cent of CGST. The GST rate for several renewable energy devices and parts for their manufacture would continue to be 5 per cent.

The following renewable energy devices and parts for their manufacture are as follows:

  • Biogas plant
  • Solar power based devices
  • Solar power generating system
  • Windmills, Wind Operated Electricity Generator (WOEG)
  • Waste to energy plants/devices
  • Solar lantern/solar lamp
  • Ocean waves/tidal waves energy devices/plants

If the above-specified goods are supplied by the supplier, along with the supplies of other goods and services which is taxable. The value of supply of goods for the purposes of this entry would be deemed as 70% of the consideration of the goods charged for all such supplies, and the remaining 30% of the gross consideration charged would be deemed as value of the taxable services. As per the Notification No. 27/2018-Central Tax (Rate), 31st December., 2018, the EPC tax rate and the installation charge was fixed at the rate of 18%.

AAR Rulings

The contradictory advance tax rulings pertaining to the tax applicability in cases where both goods and services were offered under a composite contract. Upon the taxes paid, the costs were front stacked on the goods. The tax incidence of goods was at 5%, while the incidence of service was 18%.