The renewable power sector is expected to see a big push after the GST rate rationalisation. The solar modules and cells will now attract a GST rate of 5 per cent, down from 12 per cent. Analysts said this move will help reduce project costs and speed up renewable energy adoption in India.
Jefferies noted that the cut “could lead to some volume upside” for solar players such as Waaree Energies, as lower taxes improve affordability of solar power projects. Developers, too, are likely to see better demand traction as cheaper solar equipment brings down the cost of clean energy.
GST cut likely to boost solar competitiveness
Motilal Oswal Financial Services say the rate cut will make solar power more competitive against conventional sources. “GST on solar cells has now been brought at par with other inputs like cotton and man-made fibres, which will directly improve cost efficiency,” Motilal Oswal said in its strategy note. Companies such as ACME Solar, Suzlon, JSW Energy, Waaree Energies and Premier Energy are expected to benefit.
GST 2.0 likely to reduce renewable power costs
“This policy is a crucial enabler that will directly reduce the cost of renewable power, thereby accelerating India’s ambitious energy transition and strengthening our commitment to long-term climate targets,” says Saurabh Agarwal, Tax & New Energy Partner, EY India.
Aggrawal also highlighted a few short-term challenges for the industry that comes with GST 2.0 reform, “Developers of projects awarded prior to this rate change will face the complexities of renegotiating existing Power Purchase Agreements (PPAs) under ‘Change in Law’ clauses. Additionally, the potential for accumulated input tax credit on capital goods could lead to a some onetime blockage of working capital, a hurdle that industry would pass through given the wholistic positive change.”
Aggrawal said that despite these immediate operational considerations, this policy change is an essential catalyst for the planned growth across the solar, wind, BESS and green hydrogen sectors. “We believe this forward-thinking policy will play a pivotal role in creating a robust and competitive renewable energy landscape, ensuring India remains on track to achieve its green energy goals.”
GST Compensation Cess Conversion to Offset Shortfall in FY27
According to the government, the restructuring of GST slabs—removing the 28% and 12% categories and shifting most items to 18% and 5%—will have only a limited impact on revenues in FY26. However Jefferies noted that based on FY24 consumption patterns, the tax collection loss is estimated at Rs 4.8 lakh crore annually. However, the actual hit in FY26 is expected to ease to Rs 22,000–24,000 crore, given buoyant demand.
Jefferies said the impact will not extend into FY27, as the conversion of the GST compensation cess into GST will offset the shortfall.