The Indian government has announced a significant goods and services tax (GST) reduction on renewable energy devices from 12% to 5%, starting from 22 September 2025.
This reduction is aimed at supporting India's renewable energy targets, job creation, and clean energy transition.
The tax rate rationalisation is expected to lower the costs of clean energy projects, directly benefiting domestic households, farmers, industries, and developers.
The capital cost for utility-scale solar projects, which is typically between Rs35m ($398,493) to Rs40m per megawatt, will now see savings of Rs2m to Rs2.5m per megawatt.
For a 500MW solar park, this equates to cost reductions exceeding Rs1bn, enhancing tariff competitiveness.
The reduction in GST rates is projected to decrease the levelised tariffs for renewable energy, thereby reducing the economic strain on distribution companies.
This could potentially lead to an annual reduction in power procurement expenses across the country, ranging from Rs20bn to Rs30bn.
The initiative will also reduce the expense of installing solar panels on residential rooftops.
Households can expect to save approximately Rs9,000 to Rs10,500 on a standard 3kW rooftop setup, promoting mass uptake through the PM Surya Ghar: Free Electricity Scheme.
Farmers benefitting from the PM-KUSUM scheme will see substantial savings as well. A 5HP solar pump, previously costing about Rs250,000, will now be cheaper by nearly Rs17,500.
With an estimated one million solar pumps, farmers could collectively save Rs17.5bn, making irrigation more affordable and sustainable.
It will also foster economically viable decentralised options such as mini-grids, applications for enhancing livelihoods, and solar-powered water pumps, offering significant benefits for rural and underprivileged areas.
With India's aim to incorporate approximately 300GW of renewable energy by 2030, even a slight cost decrease of 2-3% could unlock an investment potential of up to Rs1.5tn.
Given that each gigawatt of production generates roughly 5,000 employment opportunities, these changes could facilitate the creation of 500,000 to 700,000 direct and indirect jobs throughout the coming ten years.
Additionally, it is projected that every gigawatt of solar energy capacity can reduce carbon emissions by approximately 1.3 million tonnes per annum (mtpa). With the streamlining of GST, this could lead to a reduction of up to 70mtpa of emissions annually by 2030.
This change in policy supports India's obligations under the Paris Agreement.
Furthermore, India is aiming to create a comprehensive local solar production network by 2028 through initiatives such as PM KUSUM and the PM Surya Ghar Muft Bijli Yojana.
