RERC Declares GST Cut On Renewable Energy Equipment As Change In Law, Mandates Consumer Benefit Pass-Through In Rajasthan

The Rajasthan Electricity Regulatory Commission (RERC) has issued an important order recognizing the reduction in Goods and Services Tax (GST) on renewable energy equipment as a “Change in Law” event under power purchase agreements signed in the state. The order was issued on June 3, 2026, and is expected to provide financial benefits to electricity consumers while bringing clarity to renewable energy developers and distribution companies.

The Central Government reduced the GST rate on renewable energy devices and components from 12 percent to 5 percent with effect from September 22, 2025. The tax reduction applies to a wide range of clean energy technologies, including solar power equipment, wind energy devices, photovoltaic cells, and biogas plants. The GST rate had originally been 5 percent in 2017 before being increased to 12 percent in 2021. The latest revision restores the earlier lower rate.

The Commission stated that the tax reduction qualifies as a Change in Law under existing power purchase agreements. As a result, renewable energy projects affected by the GST reduction must pass on the financial savings generated by the lower tax rate. The decision covers projects where bids were submitted before September 22, 2025, and where invoices were issued, or payments were made on or after that date.

To avoid multiple legal disputes and separate petitions from renewable energy developers, the Commission issued a comprehensive suo-motu order. This approach is intended to create a uniform framework for implementing the tax benefit across all eligible projects in Rajasthan. The order also supports the broader objective of ensuring that savings ultimately reach electricity consumers.

For projects executed through Engineering, Procurement, and Construction (EPC) contracts, the Commission maintained the standard 70:30 valuation method. Under this framework, the reduced 5 percent GST rate applies only to the 70 percent goods portion, while the remaining 30 percent services component continues to attract GST at 18 percent.

The order requires renewable energy generators and power distribution entities to carry out project-specific financial reconciliations. Developers must submit detailed invoices along with certification from a Chartered Accountant or Statutory Auditor to verify actual savings. The reconciliation process and related tariff adjustments must be completed within 90 days.

The Commission also clarified that previously finalized decisions related to the 2021 GST increase will remain unchanged. However, all pending and future tariff-related proceedings must account for the latest GST reduction and include certified evidence of its impact on project costs. The move is expected to improve transparency, reduce litigation, and support the continued growth of renewable energy in Rajasthan.