The Revenue Secretary at the Ministry of Finance, Mr. Hasmukh Adhia, has tweeted that “all solar equipments and its parts would attract 5 percent GST only.” He has given statements in the media confirming that GST rate for solar modules will be 5 percent instead of the 18 percent announced earlier.

The official clarification is expected at the GST Council meeting on June 3.

The Goods and Services Tax (GST) schedule was released on May 18th, where solar cells and modules were assigned an 18 percent tax rate. But in another part of the report – all renewable energy devices and spare parts for their manufacturing, including bio-gas plant, solar power based devices and solar power generating systems, wind mills and wind operated electricity generators, waste to energy plants/devices, solar lantern/solar lamps and ocean waves/tidal waves, and energy devices/plants, are listed under the 5 percent tax rate.

Mercom decided to withhold any further analysis until this information was confirmed and urged the government to issue a clarification immediately as solar development activity has come to a standstill. An official at Central Board of Excise and Customs, had told Mercom last week that chapter 85 clearly showed that solar comes under 5 percent tax slab and there will be an order or revision issued to clarify this matter. This statement from Mr. Adhia confirms the statement from the Central Board of Excise and Customs.

This announcement is a huge relief to the Indian solar industry, but everyone wants to see the official clarification before planning the next steps.

The next steps are important and should be taken immediately to avoid further disruption in the solar sector –

  • The 5 percent GST rate should be confirmed officially
  • Final rates for ALL solar components should be clarified including the fine print
  • Clarification should be issued about what happens to current projects under development, including change in law provisions
  • Clarification on existing exemptions and what will happen to them

Without clarity on these issues development activity at best will slow down and at worst will completely freeze. This will also rattle foreign investors who do not like uncertainty and haphazard implementation of taxes.

We will continue to provide updates on this topic as we receive new information.