Two months after the government slashed GST on solar modules from 12% to 5%, solar developers say the relief has been far more muted than expected, as the lower tax rate has restricted their ability to claim ITC, limiting real financial gains.
Industry players mentioned that although the GST cut made solar modules cheaper, the practical benefit has been marginal compared to the earlier regime, where the 18% GST rate allowed developers to fully utilise input credit.
Tata Power's CEO said the new regime has created a situation where "the lower GST does not give you any input credit, while the earlier regime of 18% gave you input credit." As a result, the effective reduction translates to only 0.5-1%, a saving that companies are already passing on to consumers.
Government: ITC is still available but delayed
The government maintains that ITC is still permissible under the inverted duty structure refund mechanism and efforts are underway to expedite processing timelines. However, for many large developers operating under long-term power purchase agreements (PPAs), electricity output is GST-exempt, creating delays in realising refunds.
"Legally, developers can claim ITC at the lower GST rate, but the practical benefit is delayed, which limits any immediate financial impact," an industry leader said on condition of anonymity.
CERC order brings clarity under Change-in-Law
The Central Electricity Regulatory Commission (CERC) on November 4 declared that the GST reduction qualifies as a 'Change in Law' under renewable energy PPAs.
The order allows developers to claim tariff adjustments or refunds, even for projects whose bids were submitted before the tax cut, as long as invoices or payments are dated on or after September 22, 2025. Developers must submit auditor-certified documents showing the actual cost savings and discoms must reflect these adjustments after reconciliation.
"While the order acknowledges the financial impact, the real benefit will depend on smooth coordination between developers, discoms and auditors," the executive added.
Developers pass on partial benefits, but refunds remain key
Companies like ReNew publicly announced price reductions for solar modules and cells on September 22, effectively passing the GST cost benefit to customers. However, the company did not disclose the quantum of the reduction and did not respond to queries.
Oyster Renewable Energy's Managing Director said the GST cut has lowered input costs but stressed that "true impact will depend on whether input tax credit issues under the inverted duty structure are resolved with sufficient speed."
Another developer said the GST cut is "a step in the right direction, but not a game-changer," emphasising that meaningful relief requires faster ITC refunds, better supply-chain alignment, and policy consistency.
Industry seeking stable policy support amid renewable push
The GST revision arrives as India aggressively expands renewable energy capacity, targeting 500 GW of non-fossil fuel power by 2030. India is currently the world's fourth-largest renewable energy market.
To strengthen the solar supply chain, the Centre has launched the Production Linked Incentive (PLI) scheme, encouraging domestic manufacturing from wafers to fully integrated modules.
Developers say the GST cut provides incremental relief but underline that long-term policy certainty, faster refund cycles and integrated taxation frameworks will be critical to sustaining project viability as India ramps up its clean-energy transition.
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