GST Council cuts tax rate on renewable energy equipment to 5%

September 4, 2025 user

By Rituraj Baruah

In a significant boost for renewable energy component manufacturing in the country, the Goods and Services Tax (GST) Council on Wednesday decided to reduce the tax rate on these components, including solar cells, biogas plants and windmill equipment, to 5% from 12%.

In a notification, the Central Board of Indirect Taxes and Customs noted that the objective of the move is to promote renewable energy goods in the country.

“These goods already faced an inverted duty structure. While reducing the GST rate to 5% will deepen inversion, a mechanism for refund arising out of the inverted duty structure is available. In addition, process reforms will ensure expedited refunds,” it said.

The revised 5% GST applies to solar cookers, biogas plants, solar power-based devices, solar power generators, windmills, wind-operated electricity generators (WOEG), waste-to-energy plants and devices, solar lanterns or solar lamps, ocean waves or tidal wave energy devices or plants, and solar photovoltaic (PV) cells, whether assembled in modules or not.

Support for green power

Fuel cell motor vehicles, including hydrogen-powered trucks and buses, are also included. This would significantly boost plans to develop green hydrogen-based mobility in the country. Green hydrogen is expected to be the fuel of the future for long-haul mobility, including trucks and buses.

In a major overhaul of the GST regime, the council on Wednesday agreed on tax cuts across products and sectors and also decided to eliminate the 12% and 28% GST slabs and move most of the goods and services in these slabs to 5% and 18%, respectively.

The move to bring green power components to the 5% slab comes as India aims to achieve self-reliance in domestic manufacturing of these components. India now produces 100GW worth of solar modules domestically. The government is working to ramp up cell production and build a local supply chain for key parts like wafers and ingots, which are still mostly imported from China.

Support for green power

The development comes at a time when the production-linked incentive (PLI) scheme for solar modules, cells and other related components has failed to gain momentum. In June, Mint reported that the government is considering extending the deadline for completing projects under the ₹19,500 crore PLI scheme for solar modules and their parts. The scheme for fully and partially integrated solar PV module manufacturing has commissioning dates ranging from October 2024 to April 2026.

GST on coal

The reduction in taxes is likely to lower the cost of renewable energy generation in the country and eventually tariffs for consumers, enhancing its adoption by power distribution companies and enterprises. As the reduction makes renewable power attractive, upcoming projects that use these components at lower rates will likely find better demand for their power.

In another critical move for the power sector, the council has increased the GST on coal to 18% from the current 5%. The government notification, however, said this move is unlikely to add more burden on the buyer and hence unlikely to impact power prices.

It noted that prior to rate rationalization, coal attracted a compensation cess of ₹400 per tonne in addition to the 5% tax, which would now be eliminated. “Now, the council has recommended ending the compensation cess, and hence, the rate has been merged with GST. There is no additional burden,” it said.

The move is significant as coal still forms India’s largest power generation source. Amid the unexpected growth in power demand in the past few years, the government plans to add 80GW of coal-based power capacity in the country by 2032.

This article has been republished from The Livemint.