GST Rationalisation to Reduce Renewable Costs by ₹2,000-3,000 Cr Annually: MNRE

The GST rationalisation from 12 percent to 5 percent, announced earlier this month across the renewable energy value chain, is set to bring down the cost of clean energy projects, making electricity more affordable, according to a statement from the Ministry of New and Renewable Energy (MNRE). 

The latest GST reforms approved by the 56th GST Council meeting held earlier this month are expected to benefit households, farmers, industries, and developers directly.

Up to INR 20–25 lakh per MW Savings for Solar

Post GST rationalisation, a significant reduction in the capital cost of a utility-scale solar project is expected by the government. A typical project costs around INR 3.5-4 crore per MW. After the tax cuts, the same project is poised to cost INR 20–25 lakh per MW less. 

MNRE data suggests that this translates to over INR 100 crore cost reductions for a 500 MW solar park. 

The reduction in GST is also expected to lower levelised renewable tariffs, easing the financial burden of electricity procurement for distribution companies (DISCOMs). MNRE suggests that this will translate into nationwide annual savings to the tune of INR 2,000-3,000 crore in power procurement costs. As for the end consumers, the benefit is greater access to affordable, clean electricity.

Affordable Solar for Masses

The rooftop solar segment also stands to benefit from the GST tax cut, making it more affordable for households. As per MNRE, a typical 3 kW rooftop system will now be cheaper by about INR 9,000-10,500. This will make solar adoption easier and accelerate solar uptake under PM Surya Ghar Muft Bijli Yojana.

For the rural economy, farmers under the PM-KUSUM scheme will get a 5 HP solar pump at a nearly INR 17,500 cheaper cost. Earlier, it used to cost about INR 2.5 lakh. As per MNRE data, this will translate to  INR 1,750 crore savings per 10 lakh solar pumps.

Furthermore, rural and underserved regions will also gain from cheaper decentralised solutions such as mini-grids, livelihood applications, and solar water pumps. The shorter payback periods and improved returns will empower schools, health centres, and small businesses with clean and reliable energy access, the Ministry said.

Push for Domestic Manufacturing

The reduction in GST is expected to make Indian-made solar modules and components cheaper by 3–4 percent, helping improve the competitiveness of local equipment. 

India has set a goal of building 100 GW of solar manufacturing capacity by 2030, and the tax cut is likely to draw fresh investments into manufacturing hubs. Industry estimates suggest that every gigawatt of new capacity can generate about 5,000 jobs. This means the reform could create 5-7 lakh direct and indirect jobs over the next decade, further strengthening India’s clean energy industry.

Faster Energy Transition

Lower GST will also bring down the overall cost of renewable power and help attract more investors, making it easier to finalise power purchase agreements and complete projects on time, which has been a major bottleneck for India’s renewable transition. 

India plans to install about 300 GW of renewable energy capacity by 2030, and even a 2-3 percent fall in costs could unlock additional investments worth INR 1-1.5 lakh crore, the government revealed. With faster project rollouts supported by the tax reform, India could cut an extra 50-70 million tonnes of CO2 emissions every year by 2030.

Industry View: While industry has not disagreed over the benefits of GST reduction, ambiguity around claiming ITC has made it more complex to estimate benefits than the government believes, say many. On top of that, sharing a specific range of Rs 9000 plus for PM Suryaghar can backfire, as many installers claim to be struggling to source DCR modules at the price the government takes as a benchmark. Thus, from addressing the inverted duty structure with expedited refund mechanisms to ease cash flow, to setting benchmarks closer to ground reality, Industry, while certain of passing on benefits, seems unsure if the pass through will be an exact match .