GST on Renewable Energy Devices Reduced to 5%
In a significant move to enhance the renewable energy sector, the Goods and Services Tax (GST) Council has approved a reduction in GST rates from 12% to 5% during its 56th meeting on September 3, 2025. This reform aligns with Prime Minister Narendra Modi‘s vision of making GST a “Good and Simple Tax.” The lowered rates aim to reduce the costs associated with clean energy projects, making electricity more affordable for households, farmers, and industries. The changes are expected to have a profound impact on the renewable energy landscape in India, promoting sustainability and economic growth.
Lower Costs and Increased Competitiveness
The recent GST reduction is set to significantly lower the levelized tariffs for renewable energy, easing the financial burden on distribution companies (DISCOMs). This shift is projected to result in annual savings of ₹2,000–3,000 crore in power procurement costs across the nation. As a result, end consumers will gain greater access to affordable clean electricity, which is crucial for the long-term sustainability of India’s power sector. The capital cost savings for utility-scale solar projects, which typically range from ₹3.5 to ₹4 crore per megawatt (MW), will amount to ₹20–25 lakh per MW. For a large-scale solar park of 500 MW, this translates to a reduction of over ₹100 crore in project costs, enhancing tariff competitiveness and making renewable energy a more viable option for consumers.
Benefits for Households, Farmers, and Rural Communities
The reform will also make rooftop solar systems more accessible to households. A typical 3 kW rooftop solar system will see a price reduction of approximately ₹9,000–10,500, encouraging more families to adopt solar energy. This initiative aligns with the PM Surya Ghar: Muft Bijli Yojana, which aims to accelerate the uptake of solar energy among households. Farmers will benefit under the PM-KUSUM scheme as well, with the cost of a 5 HP solar pump dropping by nearly ₹17,500, leading to collective savings of ₹1,750 crore for farmers purchasing 10 lakh solar pumps. Additionally, rural and underserved regions will gain from cheaper decentralized solutions, such as mini-grids and solar water pumps, which will empower schools, health centers, and small businesses with reliable energy access.
Boosting Domestic Manufacturing and Self-Reliance
The reduction in GST rates is expected to enhance the competitiveness of domestically manufactured renewable energy equipment by lowering module and component costs by 3–4%. This aligns with the government’s Make in India and Aatmanirbhar Bharat initiatives. With a target of achieving 100 GW of solar manufacturing capacity by 2030, the reform is anticipated to attract fresh investments into domestic manufacturing hubs. Each gigawatt of manufacturing capacity is estimated to create around 5,000 jobs, potentially supporting 5–7 lakh direct and indirect jobs over the next decade. This growth will strengthen India’s clean energy industrial ecosystem and contribute to the nation’s self-reliance in renewable energy production.
Accelerating India’s Energy Transition
The GST cut is poised to not only lower the cost of energy but also boost investor confidence, facilitating quicker signing of power purchase agreements and faster project commissioning. India aims to add approximately 300 GW of renewable energy capacity by 2030, and even a modest 2–3% reduction in costs could unlock ₹1–1.5 lakh crore in investment capacity. Each gigawatt of solar energy is estimated to save about 1.3 million tonnes of CO₂ annually, and the accelerated deployment enabled by the GST rationalization could prevent an additional 50–70 million tonnes of CO₂ emissions per year by 2030. This reform aligns with India’s commitments under the Paris Agreement and supports the goal of achieving 500 GW of non-fossil fuel capacity by 2030, positioning India as a leader in the global fight against climate change.
The revised GST rates will take effect on September 22, 2025, marking a landmark decision that will benefit millions of consumers, farmers, developers, and manufacturers. This initiative underscores the government’s commitment to ensuring that clean, affordable, and sustainable energy becomes the foundation of India’s journey towards a developed nation.
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