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Impact of GST on Renewable Energy Sector

Published on August 24, 2016 by Upendra Singh

The Goods and Services Tax (GST) can be easily termed as the biggest tax reform in India since the economic liberalization in early 90s.

Currently, various indirect taxes are levied by states, resulting in a cascading burden of “tax on tax”. All this will change, as both the Lower and Upper Houses of the Indian parliament have unanimously passed the bill. Once the GST comes into effect (hopefully by April 2017), all central and state levies would be subsumed within an integrated tax, with a central GST and a state GST as its only components.

Although the GST is termed a game-changer for India and is believed to be beneficial for most of the industries, certain sectors could see a negative impact.

One such sector is Renewable Energy. The sale/consumption of power are outside the GST, and power generated by renewable sources will also continue to be outside the GST regime. However, various inputs and input services (capital cost and O&M costs) used to generate renewable energy would be subject to the GST.

Currently, both central and state governments provides various incentives to the sector. A few examples of the incentives provided by the government have been listed below:

  • 5% concessional rate on basic customs duty (BCD) on imported for Project Imports

  • Solar – Exemption in the form of BCD on solar panels, cells, and modules. Exemption from Additional Duty of Customs (ACD) and Special Additional Duty of Customs (SAD) and excise duty on all machinery, transmission equipment, auxiliary equipment, etc., used to set up a solar power plant

  • Wind – A 5% concessional rate on BCD and exemption from ACD and SAD on components imported for a wind power plant (such as wind-operated power generators, wind turbine controllers, etc.). Excise duty exemption for specified goods/parts used to manufacture products that may be used in a wind power plant

  • Small Hydro Projects – No specific exemptions for small hydro projects

According to a study conducted by The Ministry of New and Renewable Energy (MNRE), the effect of the GST on renewable projects would vary across segments. Impact of the GST on the Renewable Energy Sector

As evident from the above table, an increase in tax rates would have a negative impact on the renewable energy sector. It would not only lead to higher financial as well as operating costs, but would also have an adverse social impact (as it benefits every strata of the society).

Acuity Knowledge Partners has been assisting energy firms with regulatory reforms and impact analysis, M&A strategy support from target identification to post-acquisition integration, competitor intelligence, and growth strategy. We have helped firms understand the impact of regulatory and technological developments and identify opportunities arising from these developments, thereby acting as a differentiator for the firms.


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About the Author

Associate Vice President

Upendra is an expert in the energy sector within the corporate and strategic research practice. At Acuity Knowledge Partners, he is responsible for project management and execution of projects in the power and oil and gas domains. He has over 8 years of experience in consulting and analytics. His previous stints include working in an energy sector market research firm and with an Original Equipment Manufacturer (OEM).

Upendra holds a Master of Business Administration in Power Management.

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