Solar energy is increasingly becoming a preferred source of renewable energy in India due to its affordability and eco-friendliness. With the government’s push towards clean energy adoption, the demand for solar panels has surged. However, understanding the impact of Goods and Services Tax (GST) on solar panels is crucial for businesses and individuals planning to invest in these systems. GST simplifies tax compliance by integrating multiple indirect taxes, but its implications on solar panel pricing and installation can be significant. In this article, we will explore the application of GST, its rates, benefits, and how to claim it on solar panel purchases, enabling you to make informed financial decisions. For more details on GST, you can refer to the GST calculator to understand how it impacts your solar investment.
Understanding GST on solar panels
The Goods and Services Tax (GST) applies uniformly to goods and services in India, including renewable energy products such as solar panels. Under GST, solar panels fall under the Harmonised System of Nomenclature (HSN) code system, ensuring standardised classification for taxation. The GST rate on solar panels is currently set at 18%, which includes both the Central GST (CGST) and State GST (SGST) components. For businesses, proper GST registration for proprietorship is essential to claim input tax credits
Solar panels are essential for generating solar energy and are often bundled with additional equipment like inverters and batteries. While the 18% GST rate applies to most solar components, certain services associated with installation may attract lower GST rates, depending on their classification. For more details on GST, check out the comprehensive guide on GST and the latest GST rates for various products and services.
Benefits of GST on solar panels
Simplification of taxation: GST has replaced multiple indirect taxes, streamlining the tax process for manufacturers and consumers of solar panels. This ensures better transparency and compliance.
Input tax credit (ITC): Manufacturers, businesses, and installers can claim input tax credit on GST paid during the procurement of raw materials or components, reducing their overall tax liability.
Boost to renewable energy: By formalising taxation for renewable energy products, GST supports the government’s aim to expand solar energy adoption, promoting sustainability.
Competitive pricing: GST standardisation reduces logistical costs, encouraging competition among solar manufacturers. This eventually benefits consumers with better pricing options.
Encourages investments: The predictable GST structure encourages businesses to invest in solar energy, as taxation becomes less complex.
Application of GST to solar power devices and systems
The GST framework extends to a wide range of solar power devices and systems. Solar components such as panels, inverters, and batteries are classified under specific HSN codes, ensuring proper tax application. For example, GST on footwear and other goods follows a similar classification system, ensuring uniformity across industries.
Solar power systems may be sold as standalone products or as bundled solutions that include installation services. For bundled offerings, GST is levied at a composite rate, considering the goods and services combined. As per the GST regulations:
18% GST applies to solar panel devices.
Installation services bundled with solar panels may attract GST rates as low as 5%, depending on the specific contract.
GST rates and HSN or SAC codes for solar power-based devices and systems
The GST rate for solar power-based devices is 18%, as outlined by the government. These devices are classified under specific HSN codes for goods and SAC codes for services to ensure tax compliance.
The HSN code for solar panels is 8541, covering photovoltaic cells, including those in assembled modules. Other components like inverters and batteries may have different HSN codes but generally fall under the same 18% GST bracket.
Here is a table summarising the HSN codes and GST rates:
Item |
HSN Code |
GST Rate |
Solar Panels |
8541 |
18% |
Solar Inverters |
8504 |
18% |
Batteries for Solar Systems |
8507 |
18% |
Impact of GST on solar panel pricing
GST has a direct impact on the pricing of solar panels and their installation. While the standard GST rate of 18% might seem high, it simplifies the tax structure by subsuming excise duties, VAT, and other indirect taxes. This consolidation results in lower administrative costs and smoother transactions. For more information on how GST impacts other sectors, explore GST on ice cream to understand varying GST rates.
However, for consumers, the initial cost of solar panels may appear higher due to GST. Despite this, the availability of input tax credit for businesses helps offset the tax burden, enabling them to pass on cost benefits to end-users. Additionally, government subsidies and incentives for solar adoption mitigate the overall financial impact. As the demand for solar energy grows, the GST framework ensures consistency and transparency in pricing, making solar power an attractive investment for individuals and businesses.
How to claim GST on solar panel purchase
Claiming GST on solar panel purchases involves the following steps:
Ensure GST registration: Businesses need to register under GST to claim input tax credit. Learn how to register for GST online with this guide on GST registration for proprietorship.
Maintain accurate invoices: Ensure that the supplier provides a GST-compliant invoice with all necessary details, including HSN codes and GST amounts.
File GST returns: Businesses must file regular GST returns to claim input tax credit. For more details, check out this resource on GST on labour charges.
Utilise input tax credit: Businesses can offset the GST paid on solar panel purchases against their output tax liability, reducing the overall tax burden.
Consult tax experts: Engage professionals to ensure accurate filing and compliance with GST regulations for solar panel purchases.
Conclusion
Understanding the implications of GST on solar panels is essential for businesses and individuals looking to adopt renewable energy solutions. With a standard GST rate of 18%, solar panels are subjected to uniform taxation that simplifies compliance while supporting the growth of the solar energy sector. The benefits of GST, such as input tax credit and reduced logistical costs, encourage investments in solar energy and promote competitive pricing.
If you are planning to invest in solar panels, be sure to consider GST compliance, maintain proper documentation, and explore the benefits of tax credits to maximise cost efficiency. To finance your solar investments or meet your business needs, consider a business loan for seamless funding. With Bajaj Finserv Business Loan, you can get a loan of up to Rs. 80 lakh to manage your business expenses effortlessly.
