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GST On Solar Power Devices / New GST Rates on Solar Power Devices – Effective 22nd September 2025

The Indian renewable energy sector has received a major policy boost with the reduction of GST rates on solar and other clean energy devices. In its 56th meeting, the GST Council recommended lowering the rate of GST on renewable energy devices from 12% to 5%, effective 22nd September 2025.

This step is expected to make solar and renewable energy solutions more affordable for households, industries, and businesses, and is also aligned with India’s broader climate and sustainability goals.

Background – GST on Renewable Energy before the change

When GST was first introduced in July 2017, solar and renewable energy devices were placed under the 12% tax slab. The government had provided a special concessional rate to encourage green energy adoption, but the sector still faced challenges:

• High upfront cost: Even a 12% GST rate added significantly to the price of solar panels, inverters, and water heaters.
• Works contract confusion: EPC contractors executing solar projects had to divide the value of supply into 70% goods (taxed at 12%) and 30% services (taxed at 18%), which often led to disputes.
• Competitive disadvantage: Renewable devices faced higher effective taxation compared to some conventional energy equipment.

Industry players repeatedly requested a lower GST rate to bring down costs and boost adoption.

The 56th GST Council Meeting – Key decision

On 3rd September 2025, the GST Council, chaired by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, announced a significant cut in GST on renewable energy devices

Changes in Renewable Energy

.

• Old rate: 12%
• New rate: 5%
• Effective date: 22nd September 2025

The Council clarified that the reduction applies across the board to solar, wind, bio-gas, and other renewable devices, with specific HSN classifications provided.

What qualifies as solar power-based devices?

Solar power-based devices are those that directly or indirectly convert sunlight into usable energy. Some common examples include:

• Solar cookers – Used for cooking food using solar thermal energy.
• Solar water heaters – Store and heat water using solar collectors.
• Solar lamps / lanterns – Provide lighting solutions without dependence on the electricity grid.
• Solar inverters – Convert direct current (DC) from solar panels into alternating current (AC).
• Solar panels / photovoltaic cells – The most common device, converting sunlight into electricity.

These devices play a key role in reducing dependency on fossil fuels and lowering carbon emissions.

New GST rates – Device-wise chart

The revised GST rates applicable from 22nd September 2025 are as follows:

Device / HSN	Description	Old GST Rate	New GST Rate
HSN 7321 / 8516	Solar Cookers	12%	5%
HSN 8419 12	Solar Water Heater & Systems	12%	5%
HSN 85	Solar Lanterns / Solar Lamps	12%	5%
HSN 8504	Solar Inverters	12%	5%
HSN 85414011	Solar Panels / Photovoltaic Cells	12%	5%
HSN 84, 85, 94	Renewable energy devices & parts (solar, wind, biogas, ocean/tidal, waste-to-energy)	12%	5%
SAC 9954, 9983, 9987	Works contract for solar projects – 70% goods, 30% services	70% @ 5% & 30% @ 18%

 

Items not covered under 5%

It is important to note that not every item used in solar projects enjoys the concessional 5% rate. Some still attract higher GST:

• Solar controllers (HSN 8504) → taxed at 18%, as they are general electrical converters, not devices dependent on solar power.
• Solar mounting structures / civil works → taxed at 18%, since they are treated as structural material, not solar devices.

This distinction is important while classifying supplies for tax purposes.

Applicability on Works Contracts

For EPC (Engineering, Procurement, and Construction) contracts involving solar power projects, the Council retained the deemed valuation method:

• 70% of the contract value – treated as goods → taxed at 5% GST.
• 30% of the contract value – treated as services → taxed at 18% GST.

This ensures uniformity and avoids classification disputes.

Input Tax Credit (ITC) treatment

The Council has clarified how ITC will work with the new rates

Changes in Renewable Energy:

1.    ITC at prevailing rate: Taxpayers can claim ITC at the rate applicable on the date of inward supply.

2.    No reversal for past ITC: ITC already in the credit ledger can be used, even after the rate cut.

3.    No refund for inverted duty: Refund of accumulated ITC is not available where the same goods become cheaper after rate reduction.

4.    Goods in transit: No need to cancel or re-generate e-way bills when the new rate comes into effect.

Impact of the rate cut

The reduction in GST rates is expected to have far-reaching impacts:

• For consumers: The upfront cost of installing solar water heaters, cookers, or rooftop panels will come down, making renewable energy more accessible.
• For industries: EPC contractors and solar equipment manufacturers will see higher demand and better margins.
• For government: This move strengthens India’s position on climate commitments and renewable energy targets under COP agreements.
• For the economy: Reduced taxation encourages local manufacturing of solar panels and aligns with the government’s “Make in India” initiative.

Practical example

Let’s say a household purchases a solar rooftop system worth ₹1,00,000.

• Before (12% GST):
• GST = ₹12,000
• Total = ₹1,12,000
• Now (5% GST):
• GST = ₹5,000
• Total = ₹1,05,000

Savings = ₹7,000 per system.

For large projects, such as industrial solar plants worth several crores, the tax savings will be substantial.

Significance of the move

1.    Boosts renewable adoption – lower costs make solar energy viable for more households and businesses.

2.    Encourages investment – companies will find it easier to raise funds and execute projects.

3.    Creates jobs – greater demand for solar devices will generate employment in manufacturing, installation, and maintenance.

 

Conclusion

The reduction of GST from 12% to 5% on solar power and renewable energy devices is a landmark policy step. While certain items like controllers and mounting structures continue to attract 18%, the overall tax burden on solar projects has significantly reduced.

This reform not only makes clean energy affordable but also pushes India closer to its sustainability goals, strengthens the renewable industry, and benefits consumers directly.

The message is clear – India is committed to a greener, low-cost, and sustainable energy future.

Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

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