How Has GST Impacted Solar Rooftop Industry In India?

Mr. Vineet-Mittal Director, Navitas Green Solutions Pvt. Ltd.

Goods & Services Tax (GST) was implemented from July 2017. In a year prior to its introduction, India added 556 MW of rooftop solar capacity in CY2016 and 995 MW of capacity were added in CY 2017. A visible 85% Y-o-Y growth, which is considered good, was seen despite the rise in the price of ownership of rooftop solar projects due to implementation of GST. The subsequent CY 2018 witnessed capacity addition of 1678 MW in rooftop segment with 77% Y-o-Y growth.

Recently, GST Council has clarified that 70% of composite project price shall be deemed as supply taxed at the rate of 5%, whereas, 30% shall be deemed as service taxed at 18%. 

This has led to an increase of about 10% in the overall project cost from levels before GST implementation. Before GST, input tax on equipment was largely offset by excise and custom exemptions which were extended to solar energy project developers.

The upward movement in rooftop solar sector is largely driven by commercial & industrial segment (70% of the total installed capacity) and that is due to underlying benefits of replacing high tariff grid electricity and GST credit set off provision. The residential segment has suffered as cost of ownership of rooftop solar system increased for them and they were unable to gain from the fall in the prices of solar equipment.

The introduction of GST has certainly simplified tax regime in the country, and rooftop solar too like other business sectors observed a stuttered growth compared to its potential but as the business at large adapts to the GST and teething problems are reduced, we don’t see GST as a dampener in the growth of rooftop solar sector in the long term.

Mr. Vikas Jain Director Insolation Energy Pvt. Ltd.

In The Pre GST era Solar has witnessed tax free regime. There was NIL Tax on panels and other Inputs were also tax free.
No doubt that GST has imposed extra burden on the industry but I think That solar is now a grown up child and it can contribute this much to the economy.
Initially there were disputes as on which rate EPC projects to be taxed as they involve both supply and service. To resolve the dispute, the Council has recommended that in all such cases, the 70 per cent of the gross value shall be deemed as the value of supply of said goods attracting 5 per cent rate and the remaining portion 30 per cent of the aggregate value of such EPC (Engineering, Procurement and Construction) contract shall be deemed as the value of supply of taxable service attracting standard GST rate. Though industry is demanding to make it 90% and 10% respectively
Effectively, if a company bags an EPC contract, it will now pay 5 per cent GST on up to 70 per cent of the total value of the contract. And pay 18 per cent on 30 per cent of the contract value.
Since the Electricity we consume is not in GST purview the GST paid on projects could not be claimed by the clients which in terms increases the Cost of project for the clients on a product or service which was earlier tax free. So implementation of GST can be termed as negative for Solar rooftop industry.
We still hope that considering solar a upcoming industry and mass employment involved and a 40 GW rooftop target Govt. will bring down the tax rates further to make the rooftop more lucrative.

Mr. Ankit Jain Founder & CEO Lume Solar Energy Pvt. Ltd.

We as a leading Solar EPC company today, feels that the government, following industry representations on the impact of divergence in tax practices, provided a deemed valuation provision that entailed taxing 70% of contract value as goods, taxable at 5%, and balance 30% as services, taxable at 18%. The industry is of the view that applying 18% tax would derail India’s plan to add 100 GW of green power by 2022. Intense competition in recent years has driven down solar power tariff discovered in project auctions. Working over the BOS part and overall rates for solar power projects, we felt that while solar panels were classified under 5 per cent tax slab, and other equipments such as metals, electrical material etc. are under different and higher tax slabs, which would increase the cost of power project. The same has been backed by the fact that the implementation of GST is highly likely to take away the existing exemptions provided for the solar power sector (at least in terms of customs duty, sales tax and excise duties) and would therefore result in an increase in the overall cost of solar power equipment.
As is evident, components of solar power plant system comprise about 85% of total project cost. Any increase or decrease in cost of system components, due to GST would directly impact the project cost.
Apart from the direct impact of GST on solar tariff, there are likely to be other developments in the solar sector after the implementation of the GST regime, which could either promote or hinder solar development in India in both the short and long run.

Mr. Nirankush Prasad Senior Project Manager Greencube Energies Pvt. Ltd. 

As Gujarat is very much known for its solar revolution which is later followed by the rest of the states In India. As per reports Several projects including Central government-sponsored
KUSUM scheme for solar run agriculture pumps ran into trouble due to high-cost after GST. Lack of clarity over GST rate on solar run systems coupled with increasing cost, it was feared farmers would become wary of adopting cleaner irrigation systems
Much awaited clarity on GST on Solar power Project by Goods and Services Tax (GST) Council has been declared in December 2018 effective from January 1, 2019 by Putting 5% GST on 70% of the Project Cost involving supplying of solar equipment and 18% on the rest of the project involving mainly civil work and project construction.
The International Institute for Sustainable said in a report the cost of Solar System has increased the price of solar power generation by 6%. Increase in the cost of electricity not only for future projects but also for many operating plants wherein the power purchase agreement executed between DISCOMs and solar developers provide pass-through on the GST implication.
Sudden changes in the GST rate from 5% to 8.9% mainly affected ongoing solar rooftop projects i.e. the projects registered under Subsidy Scheme for Solar Rooftop has affected the Purchase of EPC (engineering procurement and construction) Developers. Though it can be beneficial for Ground Mounted Solar Systems as there is more Civil and Construction work is involved in comparison to Rooftop Projects.
Many EPC developers who are more in solar Rooftop Projects are demanding to have 90:10 Service to goods ratio to avail the benefits of solar or uniform 5% GST throughout the country. The Uniform Clarification on GST will Boost up the government’s target of 175 GW of renewable power by 2022 which includes 100 GW of solar power.

Mr. Naresh Bazzar Co-Founder & Senior Business Development Analyst GSE Renewables India Pvt. Ltd.

Maharashtra’s appellate authority for advance ruling (AAAR) on 5 September 2018 set 18% as GST on solar projects cost considering service and 5% as GST on solar projects cost considering material, endorsing an earlier ruling by the state-
level authority for advance ruling (AAR) and dismissing solar developers’ demand to be taxed at a lower 5%.

As a renewable company it’s an major implications as when we combine both 70% and 30% respective to 5% and 18% consolidated rate is aggregating at 8.9% which is much higher than previous year that’s many solar companies took exit route.

If India is targeting 100 gig watts (GW) of solar power capacity by 2022, up from the 23GW at present then applying such higher GST rate will slow down the said 100 gig watts target. The country has a total renewable power generation capacity of over 70GW currently, half of which comes from wind power.

Even intense competition in recent years has driven down solar power tariff discovered in project auctions and factors that helped producers bid for projects aggressively using measures including lower prices of imported solar panels and efficient financial structuring of projects.
However increase in efficiency due to GST will impact growth and flourishing of solar for captive consumer driving capex investment in solar, GST inward tax credit can be set off against outward supply but RESCO investment where set off is not possible and as a result it causes enhancement in Solar tariff to consumer and reduces its saving up to great extent and as a result solar become bit less lucrative.




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