GST Cut to 5% on Renewables Lowers Energy Costs, Boosts India’s Green Transition

In a landmark reform that underscores the Government of India’s commitment to building a sustainable and affordable energy future, the Goods and Services Tax (GST) Council, in its 56th meeting held on 3rd September 2025, approved a major rationalization of GST rates across the renewable energy value chain. The move reduces GST from 12% to 5% on solar, wind, and other renewable energy equipment and services, delivering a significant cost advantage to households, farmers, industries, and developers alike.

The decision, aligned with the vision of Prime Minister Shri Narendra Modi to make GST a truly “Good and Simple Tax”, will not only lower project costs but also accelerate India’s clean energy transition, strengthen self-reliance, and enhance the competitiveness of Indian renewable power.

Lowering Costs and Improving Tariff Competitiveness

The reduction in GST will directly bring down the capital cost of renewable energy projects. For example:

• A utility-scale solar project typically costs around ₹3.5–4 crore per MW. With the GST cut, the savings will be around ₹20–25 lakh per MW.

• At the scale of a 500 MW solar park, this translates into savings of over ₹100 crore, making tariffs more competitive and attractive for investors.

The reform will lower levelized tariffs and reduce the financial burden on electricity distribution companies (DISCOMs). Experts estimate that the move could lead to nationwide annual savings of ₹2,000–3,000 crore in power procurement costs, easing fiscal pressure on state utilities and benefitting end consumers with cheaper electricity.

Direct Benefits for Households, Farmers, and Rural Communities

The GST rationalization is set to directly improve affordability for ordinary citizens:

• Households: A typical 3 kW rooftop solar system will now cost ₹9,000–10,500 less, boosting adoption under the PM Surya Ghar: Muft Bijli Yojana, which provides up to 300 units of free electricity every month.

• Farmers: Under the PM-KUSUM scheme, the cost of a 5 HP solar pump will drop by ₹17,500. At a target of 10 lakh pumps, this translates into farmer savings of ₹1,750 crore, reducing irrigation costs and promoting sustainable agriculture.

• Rural communities: Affordable decentralized renewable solutions such as mini-grids, solar livelihood applications, and water pumps will now see faster adoption, empowering schools, health centres, and small enterprises in underserved regions.

Boosting Domestic Manufacturing and Jobs

The reform will also act as a catalyst for domestic renewable energy manufacturing, supporting the government’s Make in India and Aatmanirbhar Bharat initiatives. By lowering the cost of modules and components by 3–4%, Indian manufacturers gain a competitive edge over imports.

India aims to build 100 GW of solar manufacturing capacity by 2030. Every GW of manufacturing creates approximately 5,000 jobs, meaning that this policy could support 5–7 lakh direct and indirect jobs over the next decade, strengthening India’s clean energy ecosystem.

Accelerating India’s Energy Transition and Climate Goals

With India targeting 300 GW of new renewable capacity by 2030, even a modest 2–3% cost reduction frees up investment capacity worth ₹1–1.5 lakh crore, expediting project pipelines and power purchase agreements.

Each GW of solar installed saves around 1.3 million tonnes of CO₂ emissions annually. Faster deployment, enabled by GST reforms, could help India avoid an additional 50–70 million tonnes of CO₂ per year by 2030, bolstering India’s commitments under the Paris Agreement.

The reforms also align with India’s ambitious pledge to achieve 500 GW of non-fossil fuel-based capacity by 2030, while ensuring energy independence, affordable tariffs, and green growth.

Effective Date and Nationwide Impact

The revised GST rates will come into force on 22nd September 2025. From households installing rooftop systems to farmers adopting solar irrigation, and from manufacturers scaling up production to developers executing utility-scale projects, the reform will benefit every stakeholder across the renewable energy spectrum.

The reduction of GST on renewable energy marks a watershed moment in India’s clean energy journey. It directly supports millions of families and farmers, strengthens domestic industries, attracts global investment, and accelerates the pace of India’s energy transition.

By making clean electricity cheaper, more accessible, and more competitive, the reform strengthens the foundation of a Viksit Bharat—a developed, self-reliant, and climate-resilient India.