Why Did the GST Council Cut Tax on Renewable Energy Equipment to 5%?
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Synopsis
The GST Council's recent decision to lower the tax on renewable energy equipment to just 5% is a significant move aimed at boosting the clean energy sector. This change, effective from September 22, is expected to lower project costs and stimulate economic growth, making renewable technologies more competitive.
Key Takeaways
- The GST on renewable energy devices is now 5 percent.
- Tax on coal and lignite increased to 18 percent.
- Non-lithium-ion batteries' GST reduced to 18 percent.
- Hydrogen vehicles' tax cut to 5 percent.
- Streamlined GST structure with two main slabs: 5 percent and 18 percent.
New Delhi, Sep 4 (NationPress) The Goods and Services Tax (GST) Council has officially announced a reduction in the tax rate on renewable energy equipment and manufacturing components from 12 percent to 5 percent, starting on September 22 this year.
In a bid to balance revenue losses for state governments, the Council has increased the tax on coal and lignite from 5 percent to 18 percent.
Additionally, the GST on non-lithium-ion batteries, such as lead acid, sodium, and flow batteries, has been decreased from 28 percent to 18 percent to promote grid-scale energy storage solutions for renewable energy. The tax rate for lithium-ion batteries will remain at 18 percent.
Union Finance Minister Nirmala Sitharaman stated, "The GST has been lowered from 12 percent to 5 percent on renewable energy devices and their manufacturing parts, which include biogas plants, windmills, wind-operated electricity generators, waste-to-energy facilities, photovoltaic cells (whether assembled in modules or panels), solar cookers, and solar water heating systems, among others."
Moreover, the tax on hydrogen vehicles employing fuel cell technology—encompassing cars, buses, and trucks—has also been slashed from 12 percent to 5 percent. Electric Vehicles (EVs) will continue to be taxed at 5 percent.
Experts believe that the reduction in GST rates for clean energy technologies such as solar, wind, and batteries will lower project costs and boost the competitiveness of renewable energy.
The GST 2.0 reforms have streamlined the tax structure to primarily two slabs: 5 percent and 18 percent, replacing the previous four-slab system. As a result of the reduced taxes, consumer goods prices are anticipated to decline, which could lead to increased demand and stimulate economic growth.
According to HSBC Global Investment Research, India is expected to commission 11.7 GW of thermal power, 3.8 GW of hydropower, and 36 GW of solar power by FY26. Power demand grew by 4.4 percent year-on-year in August and over 2 percent in July, reflecting a recovery from a low base.
Point of View
It's evident that the GST Council's tax cuts on renewable energy reflect a commitment to fostering a sustainable environment. By reducing tax rates, the government is not only encouraging investment in clean technologies but also supporting economic growth in a critical sector. This balanced approach aligns with the nation's goals of energy sustainability and economic revitalization.
NationPress
04/09/2025
Frequently Asked Questions
What is the new GST rate for renewable energy equipment?
The GST Council has reduced the tax on renewable energy equipment to 5 percent from the previous 12 percent.
When will the new GST rates take effect?
The new GST rates will be effective from September 22 this year.
How will these changes affect the renewable energy sector?
These tax reductions are expected to lower project costs and enhance the competitiveness of renewable energy technologies.
What changes were made to the tax on coal?
The GST on coal and lignite has been increased from 5 percent to 18 percent.
What is the current tax rate for electric vehicles?
Electric Vehicles (EVs) will continue to be taxed at 5 percent.
