New Indian regulation to increase overall project cost of PV by 12 % by July, 1

The Indian government has raised GST rates to a rate of 18 % (photo: iStock)
The Indian government has raised GST rates to a rate of 18 % (photo: iStock)

The Indian government has released new regulations that could severely affect the Indian PV boom: The Goods and Services Tax (GST) rates have been raised under the new indirect tax regime to a rate of 18 %.

According to a recent publication by the international consultancy Bridge to India the proposed GTS is to be rolled out from July 1. The biggest surprise for the power and renewable sector was the announcement of a 18 % tax rate for solar modules (compared to a present effective rate of 0.0 %). Even worse, the GST rate for coal has been lowered to 5 % as against a current rate of 11.69 %. Most other renewable projects and equipment including wind turbines, waste to energy plants, tidal energy plants, bio-gas plants, and even solar power based devices or generating systems have been classified under the 5 % rate bracket.

The new regime will result in an increase of 18 % in module cost, about 12 % in inverter cost and 3 % in all service costs – increasing overall project cost by about 12%. The new rates would hit more than 10 GW of ongoing utility scale projects and pose a threat to their viability.

As of today, most states levy a 5% Value Added Tax (VAT) on solar modules. However, in practice, the actual tax rate levied is zero because of waiver on import duty and VAT in many states. Bridge of India sees the new regime as a means designed to give an advantage to domestic manufacturing – but one that will not reach its aims, as cost of import of raw material, including cells and wafers, will go up in the same proportion.

There was widespread expectation that solar modules would be classified under zero or 5% bracket to continue growth momentum in the sector. However, sharp reduction in equipment costs and solar tariffs seems to have convinced the government that the sector doesn’t need any more financial incentives.

Volker Buddensiek / Bridge to India