A likely decision by the powerful federal indirect tax body, the Goods and Service Tax (GST) Council, to levy 5 per cent tax on solar panels instead of 18% proposed earlier could mean only a marginal rise of 4 per cent in solar power projects cost on account of bringing the item under taxation, said consulting firm Bridge to India (BTI) in a note.
Reducing tax exemptions is one of the underlying principles of GST. The 5% tax rate on solar panels would effectively mean that bringing panels under the tax net will not hurt the flourishing sector – something that the solar power industry feared last week. The solar industry had so far enjoyed tax exemption.
Last week, BTI had said that the GST Council’s decision to set 18 per cent tax rate for solar modules as compared to a present effective rate of zero will increase overall project costs by about 12 per cent. It had also said that the new rates would hit more than 10 gigawatt of ongoing utility scale solar power projects and pose a threat to their viability.
However, union revenue secretary Hasmukh Adhia tweeted on Sunday saying that all solar equipment and their parts will attract only 5 per cent GST, indicating that the GST Council meeting on 3, June, is likely to make the change in the schedule of tax rates.
The schedule of tax rates that the council uploaded in the website of Central Board of Excise and Customs on 18 May said that the list will be subject to further vetting during which it may undergo some changes.
In its latest note on Monday, BTI said the now, “total project capital cost is likely to rise by about 4% as against 10-12 per cent envisaged earlier”.
BTI stressed that some developers may still file compensation claims but many of them might simply absorb the additional burden to avoid scrutiny of sensitive commercial information.
The consulting firm explained that the new tax regime will result in effective rate of indirect taxes to go up from zero to 5 per cent on solar modules and around 3 per cent on engineering and construction services.
“Impact on inverters is still not clear,” it added.
India has an ambitious solar power target of 100 GW by 2022. At present, India has 12.28 GW of grid connected solar power installed.
