Two months after the government reduced GST on solar modules from 12 percent to 5 percent, developers say the relief has been minimal, because, in practice, the lower rate has limited their ability to claim input tax credit (ITC).
Industry stakeholders told Moneycontrol that the GST cut has lowered the tax on solar modules, making equipment cheaper, but companies cannot fully realize the benefit the way they did under the previous 18 percent rate.
“The new regime of lower GST does not give you any input credit, while the earlier regime of 18 percent gave you input credit. So, net-net there is not much of an impact because the input credit is now not there. Whatever small benefit is there, that of course gets passed on to the consumer, translating to roughly 0.5–1 percent,” Tata Power CEO told Moneycontrol.
The government, however, said ITC is still allowed through a refund mechanism under the inverted duty structure, and it is working to speed up the process.
“Legally, developers can claim ITC on solar equipment even at the lower GST rate, but for large developers whose electricity output is GST-exempt under long-term power purchase agreements (PPAs), the practical benefit is delayed, which limits any immediate financial impact,” said an industry leader requesting anonymity.
The Central Electricity Regulatory Commission (CERC) on November 4 issued a suo-motu order stating that the tax cut qualifies as a “Change in Law” under renewable energy PPAs and hence, developers must adjust tariffs or claim refunds. The latest order now allows projects to benefit even if their bids were submitted before the GST cut, provided invoices or payments fall on or after September 22, 2025. Developers will need to provide auditor-certified documentation showing the actual cost reduction due to the GST cut, and discoms are required to reconcile and reflect these savings.
“While the order formally acknowledges the financial impact of the tax reduction, the real benefit will depend on smooth coordination between developers and utilities, timely audit certification, and accurate mapping of invoices to specific projects,” the industry executive added.
Companies like ReNew announced on September 22, 2025, that they are cutting the prices of their solar modules and cells, effectively passing on the full benefit of the government’s decision. The company did not specify the exact percentage of the price reduction for a module. ReNew, however, did not respond to queries sent by Moneycontrol.
“While the recent GST revision directly reduces input costs for solar project development and module manufacturing, we believe the true impact will depend on whether input tax credit issues under the inverted duty structure are resolved with sufficient speed,” said Managing Director of Oyster Renewable Energy Pvt. Ltd.
For developers and manufacturers, benefits will be fully realized only if the government further streamlines input credit refunds and works to align supply chain taxes with project viability, he told Moneycontrol.
Another industry stakeholder said for now the GST reduction is a step in the right direction, but not a game-changer. “Module prices have come down, and some savings are being passed to consumers. But, meaningful relief will require faster refund mechanisms and broader alignment between tax policy, supply chains, and project economics,” an industry executive said requesting anonymity.
The GST rate cut comes at a time when India is pursuing a major push in renewable energy, targeting 500 GW of non-fossil fuel capacity by 2030 to secure energy independence. The country currently ranks fourth globally in renewable energy capacity.
To secure its supply chain, the government launched the Production Linked Incentive (PLI) Scheme to fund manufacturers in establishing large, fully-integrated solar facilities, aiming to build a domestic supply chain for all solar components, from wafers to final modules.
