The renewable energy sector is a key pillar in India’s sustainable development goals. With the increasing focus on solar, wind, hydro, and bio-energy, it's crucial to understand how Goods and Services Tax (GST) applies to this sector. From equipment supply to project execution, GST impacts the cost and feasibility of clean energy initiatives.
Goods and Services Tax (GST) is a unified indirect tax system that replaces multiple central and state taxes. It is levied on the supply of goods and services, including those used in renewable energy projects.
Supply and installation of solar panels
Sale of wind turbines
EPC (Engineering, Procurement & Construction) contracts
Inverters, batteries, and controllers
Operation & maintenance services
Electricity (being neither goods nor services) is outside the scope of GST, as per Entry 104 of the Constitution.
📌 Important Note: While electricity is not taxed under GST, the equipment and services used to generate it are taxable.
| Item/Service | GST Rate |
|---|---|
| Solar Power Generating Systems | 5% |
| Wind Operated Electricity Generators | 5% |
| Inverters, Controllers (standalone) | 18% |
| EPC Contract (Composite Supply) | 8.9% (70% of 5% + 30% of 18%) |
| O&M Services | 18% |
🔧 For EPC contracts, the GST Council allows a blended rate:
70% of the total contract value taxed at 5% (goods)
30% taxed at 18% (services)
This brings the effective rate to ~8.9%
🔁 Availability of ITC varies:
For commercial projects: ITC is allowed on inputs and services.
For residential rooftop solar projects: ITC is usually not available if output is exempt (e.g., sale of electricity).
📌 Businesses registered under GST can claim ITC to offset the tax paid on purchases, reducing overall project costs.
Intra-state supply: CGST + SGST applicable
Inter-state supply: IGST applicable
Installation services: Place of supply is where the service is performed
📝 Important Circulars:
Circular No. 163/19/2021-GST: Clarifies EPC contract GST rate
Notification No. 1/2017 – Central Tax (Rate): Lists items at 5% GST rate including solar modules and wind turbines
⚠️ Common issues faced include:
Misclassification of composite vs mixed supply
Disputes over taxability of rooftop solar
Confusion in availing ITC
Rate inconsistency for components sold separately
The GST regime has significantly impacted the renewable energy sector. While certain favorable rates apply (like 5% on solar and wind systems), complexities in composite contracts, ITC, and classification persist. Clear understanding and compliance are essential for project cost optimization and avoiding litigation.