GST in the Solar Energy Sector

Posted on Posted in Knowledge Center

The schedule of GST for the solar sector and its impact has been studied and discussed by multiple companies and individuals. However, we are here to discuss the basics of GST specifically in the Rooftop Solar Sector and our interpretation of the bill and finally the impact it will finally have on the project cost.

gst-blog

The entire bill may be accessed here

HS Codes may be accessed here

Highlights

A brief of all the taxes that are of use to us (in the Rooftop Sector) have been listed below along with the respective percentages.

  1. Chapter 38: Silicon wafers [3818]- 12%

Most of the wafers are imported from China. An import duty of 10% is levied (this will not be waived). Within India there is a landing rate of 1%, countervailing duty rate of 12.5%, CESS 3% and finally an additional countervailing duty rate of 4%. This is equal to a total of 20.5% worth taxes just in India (refer). With GST this will come down to 12% (refer). This would lead to a decrease in the production cost of solar panels. However, what impact it would have on reduction of the price of panels can’t be said with certainty.

 

  1. Chapter 74: Copper Wire and Sheets- 18%

This part of the Solar Power Project would not have taxes lesser than before. The industry is still waiting for clarity on whether cables would also be included as a component of a Renewable Energy Generating System and hence, have lesser taxes levied on it.

 

  1. Chapter 76: Aluminium for structures- 18%

Aluminium maybe used for mounting structures in some cases in which case, the tax that would be levied on the mounting structure would be at the rate of 18%.

 

  1. Chapter 72: Iron and Steel- 18%

Iron and Steel maybe used again in case of mounting structures which would come under the tax slab of 18%

 

  1. Chapter 84 & 85: Renewable Energy Devices & Spare Parts- 5%

Other Renewable Energy Devices which includes equipment etc should have a tax rate of 5% (apart for those components for which rates are mentioned specifically). However, in the same chapter, there is a mention of Semiconductor material whether or not converted or not into panels taxed at 18%.

However, MNRE Secretary has clarified that all parts related to Solar Sector will remain under the tax slab of 5% (refer). Lots of clarifications pending to be released officially. Meanwhile, let’s have a look at the overall cost reduction on the BoM before and after GST. Here we have shown two tables one before the clarification and one after the clarification is ascertained.

 Table 1: If GST is not limited to 5%

Device Tax before GST GST Percentage Difference after GST Price rise in rupee/Wp
Modules 0% 18% 18% 5.04
Inverter 5% 18% 13% 0.47
Mounting Structure 5% 18%/ 28% 13% 0.50
Mid clamps & End Clamps 5% 18% 13%
Cables 5% 18% 13% 0.06
Junction Boxes, connectors and other BoS 5% 18% 13% 0.13
Earthing 5% 18% 13% 0.05
Conduits 5% 28% 23% 0.03
Services 15% 5% -10% – 0.7

 

Table 2: If GST is limited to 5%

Device Tax before GST GST Percentage Difference after GST Price rise in rupee/Wp
Modules 0% 5% 5 1.4
Inverter 5% 5% 0 0
Mounting Structure 5% 5% 0 0
Mid clamps & End Clamps 5% 5% 0 0
Cables 5% 5% 0 0
Junction Boxes, connectors and other BoS 5% 5% 0 0
Earthing 5% 5% 0 0
Conduits 5% 5% 0 0
Services 15% 5% -10 – 0.7

 

Assumptions:         1. Modules are shipped from States- Karnataka, Tamil Nadu, UP, Rajasthan & Maharashtra.                                   2. All equipment prices are considered for an average 100 kW project

 

In either of the cases as show above, there would an overall increase in the price of the Project Cost. However, if we consider table 2 to be finally what prevails, an increase in the tax maybe accompanied by a decrease in solar cell prices and hence, solar module price. This may imply an overall decrease in price and perhaps more proliferation. The industry is yet to receive a formal clarification before July 1st to finally come to a consensus on whether prices will increase or decrease.

Meanwhile, since we already know that prices are set to rise, it might be wise to stock modules for your upcoming projects. You may procure from Ezysolare which offers discounted prices for modules and also offers a variety of makes. Have a look here on Ezysolare’s Solarkart.

8 thoughts on “GST in the Solar Energy Sector

  1. The point to be noted is that it is the PV system as a whole which will be taxed at 5% under the GST regime. This will be the product of system integrators / EPC contractors and therefore the end customer will pay a GST of 5% on the price of the system. The inputs of these integrators, viz. the modules, inverter, MMS and other BoS will be subject to 18% or 28% as applicable. This is likely to lead to an accumulation of input credit for these entities and if it cannot be set off, the accumulated credit will become a cost to the integrator / EPC contractor.
    For RE generators whose final product is energy, if there is no GST on energy sales, then the accumulated input credit will become a cost. This raises a question. Will electricity duty or elec tax be subsumed under GST?

    1. Dear Murali,

      Thank you for your comment. Currently, there is no ED on Solar barring some states. However, there is no mention that ED being subsumed by GST. Ideally that should be the case.

      Regards,
      Tanya

  2. Thanks a lot for blog and these tables.
    You mention
    “Other Renewable Energy Devices which includes equipment etc should have a tax rate of 5% (apart for those components for which rates are mentioned specifically). However, in the same chapter, there is a mention of Semiconductor material whether or not converted or not into panels taxed at 18%.

    “However, MNRE Secretary has clarified that all parts related to Solar Sector will remain under the tax slab of 5% (refer). Lots of clarifications pending to be released officially. Meanwhile, let’s have a look at the overall cost reduction on the BoM before and after GST. Here we have shown two tables one before the clarification and one after the clarification is ascertained.”

    it seems in the earlier notification no HS code is mentioned for these devices which may be charged at 5%.
    Renewable energy devices – do the include equipment like solar inverters?
    Any idea which HS code should be used to these devices – assuming rate comes down to 5%?

  3. Please let me know what is the HS code for Solar BOS components like Solar Combiner Box, DC distribution Board and AC distribution Board.

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