How GST will reshape the Indian solar industry.

On July 1, 2017, India embraced the Goods and Services Tax (GST) legislation. Touted as one of the major financial reforms since Independence, the legislation had initially created apprehension in the minds of taxpayers and entrepreneurs alike. Few realize that the reform will be a game-changer for the economy. Let us first try to understand what the legislation entails. Broadly speaking, GST will subsume the whole gamut of indirect taxes such as VAT, Service Tax, central excise tax, octroi into one unified tax. This has multiple ramifications not only for the Indian solar sector, but for the economy as a whole.

To talk about the Indian solar sector, it can be regarded as the future of India’s energy roadmap. India faces the crucial energy dilemma considering that approximately 18,000 villages do not have access to energy, but, at the same time, the country has a strong commitment to reduce its carbon footprint. It is here that solar energy comes to the rescue. It is eco-friendly and hence can play an instrumental role in reducing country’s carbon footprint. The solar energy has the potential to bridge the crucial energy gap especially in remote areas where access to conventional energy is difficult. From the consumer’s viewpoint, switching to solar energy will lead to reduction in burgeoning power bills.

Taking into account these benefits of solar energy, the government has always accorded a slow of incentives to this sector. But the government’s decision to levy 5 per cent GST on solar panels and solar PV cells as against the effective rate of taxation at 0% in the previous regime will, no doubt, lead to marginal increase in project costs. Those who had bid aggressively for solar projects in the past six months assuming that solar panels rates would fall under the new regime would also face some problems during the transitional period. However, the government’s rollback of decision of taxing it earlier at 18% comes as a major respite for the industry. It should also pertinent to mention here that the reduction in the solar tariffs to as low as Rs 2.44 per unit augurs well for the industry as it will offset any increase in project costs due to implementation of GST.