GST on Solar in India (2026): 5% on Equipment, About 8.9% on EPC Contracts

What changed and when

At its 56th meeting on 3 September 2025, the GST Council cut the rate on solar cells, solar modules and other renewable-energy devices from 12% to 5%, effective 22 September 2025. It was part of a wider rate rationalisation, and for solar it reversed the increase from 5% to 12% made in 2021.

Because equipment is the largest part of what a solar plant costs, the cut flows almost directly into a lower project price and a shorter payback.

How GST works on a full EPC contract: the 70:30 rule

Most plants are bought as a package: modules, inverters, structures and cables plus the design, installation and commissioning. Since 2019 the GST rules have deemed such a supply of a solar power generating system with services to be 70% goods and 30% services. The goods part is taxed at the solar rate and the services part at 18%.

Tax officers have sometimes argued that a solar EPC contract is a works contract for immovable property taxable at 18% in full. In December 2025 the Andhra Pradesh High Court, in a case brought by a module maker and EPC company, held that the 70:30 formula applies to such a contract and directed the tax to be recomputed at about 8.9%. The judgment is binding only in that state, but it is persuasive elsewhere.

Input tax credit: can your business claim the GST back?

A registered business that uses the solar plant in the course of making taxable supplies (a factory, a warehouse, a tea factory selling made tea) can generally claim input tax credit on the GST paid on the plant, treating it as a capital good. That makes the GST itself largely a cash-flow item rather than a cost.

Credit can be restricted where the power is used for exempt supplies, where the plant is treated as immovable property under your facts, or where the books treat it in a particular way. The rules are nuanced, so confirm the position for your business with your chartered accountant before you budget the project.

Worked example: what the cut saves on a Rs 1 crore plant

Take a commercial plant whose pre-tax contract value is Rs 1 crore.

For a business that cannot claim input tax credit, the saving is a straight reduction in project cost. For one that can, it reduces the cash locked up until the credit is used. Either way, payback improves.

Other taxes that affect a solar project

• Customs duty on imported cells and modules (see solar import duty in 2026).
• Accelerated depreciation on the plant for a business owner (see our depreciation guide).
• Electricity duty on self-consumed power, which some states levy or waive for captive solar under their solar policies.
• Open-access charges if the plant is off-site (see Green Energy Open Access).

Frequently asked questions

Sources

1. pv magazine India, 4 Sep 2025: GST on solar cells, modules cut to 5%
2. Tally Solutions: Solar HSN codes and GST rates 2026
3. Taxscan: GST on solar EPC contracts at 8.9% under the 70:30 formula (Andhra Pradesh High Court)

This guide explains public policy in plain language for planning purposes. Rules, rates and deadlines change: confirm the current position with the notifying authority, your DISCOM and your tax adviser before you commit. Last checked 11 Oct 2026.