GST Reduction on Solar 2025: From 12% to 5% — A New Era Begins

On September 3, 2025, the 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, made a landmark decision: GST on solar goods and renewable energy equipment will be reduced from 12% to 5%. This change is part of a sweeping tax reform simplifying India’s GST structure into just two main slabs: 5% and 18%, alongside a special 40% 'sin goods' category

The updated rates are set to come into effect from September 22, 2025, aligning with the start of Navratri

2. Substantial Capex Savings

 Current GST Structure on Solar

Until now, solar projects in India followed a 70:30 composite supply model:

• 70% goods (modules, inverters, structures, etc.) → taxed at 12%

• 30% services (installation, commissioning, design, etc.) → taxed at 18%

This led to an effective GST rate of ~13.8% on solar projects.

👉 Impact:

• Large utility-scale projects saw crores of additional upfront tax burden.

• MSMEs and households faced higher costs, slowing down rooftop solar adoption.

  
  

GST Reduction in 2025 – The New Structure

With the 2025 GST reforms, India is moving to a simplified 2-slab tax regime:

• Goods related to solar → taxed at 5% (down from 12%)

• Services (installation, commissioning, etc.) → continue at 18%

This reduces the effective GST on solar projects to ~8.9%, a 4.9% drop from current levels.

📌 Example of Savings:

• A ₹100 crore solar project → saves ₹5 crore in taxes.

• A ₹10 lakh rooftop solar plant → saves ₹50,000 upfront.

  

  
  

3. Boost to Affordability, Adoption & IRR

Lower Capex increases Internal Rates of Return (IRR) and shortens payback periods, especially for residential rooftops and MSME projects. More households and businesses will find solar both affordable and viable.

4. Support for Atmanirbhar Bharat

The reduced GST favors domestic manufacturers of solar components, reinforcing the “Make in India” mission and strengthening solar supply chains.

5. Acceleration Towards Energy Targets

The reform aligns with India’s ambition to reach 500 GW of renewables by 2030, pushing the country forward on its clean energy and Net Zero journey.

Conclusion

The reduction of GST from 12% to 5% on solar goods, effective from September 22, 2025, marks a transformative shift for India’s solar landscape. It translates into lower project costs, better returns, enhanced access for consumers and businesses, and stronger domestic manufacturing—all while empowering India’s journey towards clean, affordable, and sustainable energy.