The Indian government is actively reviewing the GST on renewable energy sector, with a plan to reduce it to 5% from the current 12–18% rates. This move aims to reduce the cost of clean energy projects, encourage fresh investments, and accelerate India’s shift toward sustainable power sources.
Panel Recommends GST Cut on Green Hydrogen
A GST Council fitment committee has already recommended slashing GST on green hydrogen from 18% to 5%. Green hydrogen is considered a critical clean fuel for industries such as steel, fertilizers, and transport. The tax cut is expected to make it more affordable and competitive compared to conventional fuels. Economic Times
Industry Push for 5% Uniform GST
Renewable energy industry leaders have consistently demanded a uniform 5% GST on solar, wind, hydro, battery storage, and green hydrogen components. At present, renewable energy projects often face mixed GST rates ranging from 12% to 28%, depending on the component or service category. This increases the overall cost of projects and affects investor sentiment.
Legal Relief for Solar Sector
In 2024, the Andhra Pradesh High Court ruled that Solar Power Generating Systems (SPGS) should be taxed as a composite supply at 5% GST instead of 18%. This judicial intervention provided major relief to the solar EPC sector, which had been struggling with higher taxation under works contract classification.
Why GST Cut Matters
Reducing GST on renewable energy sector is expected to:
- Lower project costs, making renewable energy more competitive.
- Attract private investments in solar, wind, hydro, and storage projects.
- Accelerate India’s 500 GW renewable target under its 2030 climate commitments.
- Boost adoption of green hydrogen in industries and transport.
Government’s Clean Energy Goals
India has pledged to achieve net zero carbon emissions by 2070 and aims to generate 50% of its energy from non-fossil sources by 2030. Cutting GST on renewable energy is seen as a crucial policy move to meet these ambitious targets while balancing affordability for developers and consumers.
What’s Next?
While the proposal for green hydrogen GST cut is at an advanced stage, a broader reduction across the renewable sector is still under government review. If approved by the GST Council, the decision could be announced in an upcoming session, marking a historic tax reform for India’s clean energy sector.
