GST Reduction on Solar Expected from 12% to 5% – A New Dawn for India’s Solar Sector (Upcoming GST Reforms)

On Independence Day 2025, Prime Minister Narendra Modi announced a landmark GST reform that will simplify India’s complex tax system. The new structure will merge multiple slabs into just two rates — 5% and 18%, while a handful of “sin goods” remain at 40%.

While this step is aimed at boosting overall tax compliance and economic efficiency, for the solar energy sector, it represents a transformational opportunity. Lower GST will make renewable energy more affordable, accessible, and aligned with India’s clean energy mission.

🌞 Current GST Burden on Solar Projects

At present, solar projects are billed under a 70:30 composite supply ratio:

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

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

This structure results in an effective tax rate of ~13.8% on solar projects.

👉 Impact today:

• Large utility-scale and C&I (Commercial & Industrial) projects face crores of extra upfront costs.

• For households and MSMEs, the higher tax often acts as a barrier to rooftop adoption.

  
  

⚡ What the GST Reform Brings

Under the new regime:

• 70% goods → taxed at 5% (down from 12%)

• 30% services → taxed at 18% (unchanged)

This will bring the effective tax rate down to ~8.9% — a 4.9% reduction.

📌 Real-world savings:

• A ₹100 crore solar project could save ~₹5 crore.

• A ₹10 lakh rooftop plant could save ~₹50,000 upfront.

  
  

🚀 Key Benefits to the Solar Industry

1. Lower Project Costs → Higher ReturnsReduction in GST lowers Capex, improves IRR, and shortens payback periods — making solar investments more attractive.

2. Boost for Rooftop & C&I SolarResidential and MSME consumers are highly price-sensitive. Lower GST makes 1–3 kW rooftop systems and C&I projects far more viable.

3. Support for Domestic ManufacturingReduced GST on goods strengthens Make in India, boosting local production of modules, inverters, and other BoS components.

4. Faster Energy TransitionWith reduced solar costs, adoption accelerates — helping India achieve its 500 GW renewable energy target by 2030 while cutting reliance on fossil fuels.

   
   

💡 Why This Reform Matters Beyond Numbers

A shift from 13.8% to 8.9% GST may seem small, but the implications are massive:

• For developers → frees up crores in working capital.

• For households → makes rooftop solar more affordable and bankable.

• For India → aligns taxation with energy independence & climate goals.

This is more than tax simplification — it is about building the right financial ecosystem to power a clean, green, Atmanirbhar Bharat.

🌍 The Road Ahead

India has already achieved 100+ GW of solar manufacturing capacity, positioning itself as a global hub. But for true growth, we must balance manufacturing strength with affordability and accessibility.

The GST reduction on solar is a catalyst reform — simplifying taxation, lowering costs, and empowering every stakeholder: manufacturers, developers, investors, and end consumers.

✨ Affordable • Accessible • Atmanirbhar ✨The sun is rising on a brighter, more sustainable future for India’s solar sector.