Solar Power In India Post-GST
Goods and Service Tax (GST) has been a long-awaited reform of indirect taxation in our country.
It has been welcomed by industry leaders and businessmen alike for unifying the entire country into a single market in terms of taxation.
However, the roll-out of GST could not have been seamless in a vast country like ours, with the many types and rates of taxes applicable within each state. Even six months after the roll-out and several amendments of the GST rates later, the country is still figuring out the overall impact on the final price which the consumer has to pay for respective goods and services. The solar industry is hardly untouched by this, but there has been an improvement in clarity as the time progresses.
How is solar power being taxed in India?
Solar Photovoltaic (PV) Power Plant, like any other engineering project, has greater complexity involved when it comes to computing applicable taxes. From an accounting point of view, the input cost to a Solar PV Power plant consists of components such as Solar PV Modules, Solar Inverter, Mounting Structure, Cables, etc as well as various services involved in the integration of plant i.e. Engineering, Installation & Commissioning, Logistics. The output consists of a single component – a functional Solar PV Plant.
Each of these individual input components falls under different tax rate, and hence, to compare pre and post GST impact, one has to look at each of these components closely.
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Solar power before GST
Prior to the introduction of Goods & Service Tax (GST), the components were taxed at the time of production (Excise) and at the time of Sale (VAT).
For sale of components between two states CST was applicable. Moreover, for projects executed within certain Municipal Corporation limits (eg. Mumbai – BMC), additional Octroi was applicable to the components. One major benefit of the GST is that it has subsumed all of these taxes and simplified the entire chain from production/import of components to the consumer.
Solar power after GST
As for the individual components, GST rate is more or less similar to what was applicable pre-GST in form of Excise + VAT etc. The classification of the previously applicable taxes as GST has in fact allowed project developers to obtain higher set-off, thus passing on the benefit to the consumer.
Only in the case of PV Modules, the applicable GST is 5%, as against 0% VAT applicable in various states pre-GST roll out. When compared in % terms, this has caused the effective rise of tax by around 3 to 5% (as PV modules constitute more than 50% of Project Cost), however, due to improved taxation efficiency, benefit of input tax set-off and removal of tax border between states, the overall solar project costs are expected to be same in long-term, if not lower, than what was in pre-GST times.
How does this affect the average solar power user in India?
The current prices of solar energy make it an attractive option when compared to some of the residential and commercial rates of electricity (specifically in the state of Maharashtra), especially after the introduction of GST.
Moreover, the government is encouraging solar adoption among masses in order to achieve its set target of 175 GW of renewable energy by 2022, out of which 100 GW is to come from solar energy.