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The Minister of Power Suggests a Standard 5% GST On All Renewable Energy Components

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The Minister of Power (MoP) has told the Department of Revenue that it will be writing to recommend a standard 5% Goods and Services Tax (GST) on all renewable energy components across the country.

In this regard, MoP had requested renewable energy associations and developers to provide a list of components and raw materials used in the development of projects related to solar, wind, pumped hydropower, battery energy storage systems, bioenergy, waste to energy, green hydrogen, green ammonia, carbon capture, and electric vehicles for which a GST reduction can be proposed to the Department of Revenue during a meeting chaired by Central Electricity Authority (CEA).

This comes after the CEO of NITI (National Institution for Transforming India) Aayog wrote a demi-official letter to the Secretary of the Department of Revenue arguing for a single GST slab on all renewable energy components.

The Minister of Environment (MoE) also asked renewable energy associations and developers to submit the harmonised system code and current GST rate for the suggested components and raw materials. The GST cut for renewable energy components will assist India meet the “Panchamrit” targets declared by Prime Minister Narendra Modi at the United Nations Climate Change Conference in Glasgow (COP26). The ‘Panchamrit’ intends to increase non-fossil energy capacity to 500 MW, use renewable energy to meet 50% of India’s energy needs, reduce carbon emissions by one billion tonnes by 2030, and reduce the economy’s carbon intensity by 45%.

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The GST council announced a 5% to 12% rise in GST for “selected renewable energy parts” in September 2021, which went into effect the following month. With the increase in GST from 5% to 12% on renewable energy equipment, the new effective GST rate on wind and solar electricity is roughly 13.8% at the project level.

The economic feasibility of renewable energy projects, as well as already under construction and upcoming projects, will be significantly impacted by an increase in the GST rate. Though developers can always seek compensation under the ‘Change in Law’ clause, they do not want to get themselves into a legal quagmire comparable to that which GST claims have produced. For years, the solar industry has pleaded for clarification on GST rates. Standardization of renewable energy components would give much-needed relief to the industry.

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