A flat 5 per cent tax on all solar power equipment will put the sector on par with domestic coal from July 1 and make solar energy generation more expensive and could hurt the young and booming industry.

May 29, 2017

India will levy a 5 per cent tax on all equipment required for generating solar power compared with nil duty now, a government official clarified, putting an end to confusion about the new taxation policy for the industry after its landmark tax reform. “All solar equipments and its parts would attract 5 per cent GST only,” Revenue Secretary Hasmukh Adhia said in a tweet on Sunday, contrary to the initially planned two tax slabs of 5 per cent and 18 per cent.

India, the world’s third biggest greenhouse gas emitter, has set a target to produce 100 gigawatts of solar power in five years to fuel its economic expansion while reducing its carbon footprint. A flat 5 per cent tax on all solar power equipment will put the sector on par with domestic coal from July 1 and make solar energy generation more expensive.

The 5 per cent tax, however, is in contrast to a previous notification that had fixed an 18 per cent tax on photovoltaic cells and panels, which account for a bulk of solar power generation costs. Domestic coal sales now attract a 11.69 per cent duty. State-run Coal India Ltd, saddled with millions of tonnes of unsold coal, is expected to be the biggest beneficiary of the decision.

A tax on solar parts could hurt the young and booming industry, which relies heavily on cells imported from China. Solar tariffs in India had fallen to a record low of 2.44 rupees (USD 0.0378) per unit earlier this month.

India is extending capital subsidies and cheaper loans for clean energy to help meet Prime Minister Narendra Modi’s goal of raising renewable energy capacity by more than five times in the next five years to fight climate change. Solar power generation capacity in India has more than tripled in less than three years to over 12 GW, helped by lower module prices and borrowing costs.