Loading...

Weekly Update: India may provide tax incentives to households for rooftop solar


17 June 2014 | Jasmeet Khurana

Weekly Update: India may provide tax incentives to households for rooftop solar

In a recent statement, Ministry of New and Renewable Energy (MNRE), has said that it proposes to allow tax incentives for households who wish to set up rooftop solar plants and the proposal is to be discussed with the Ministry of Finance (refer).

  • As of now, individuals and or households do not get any tax benefits for going solar
  • The proposed tax incentive is expected to promote distributed solar generation
  • Like the accelerated depreciation benefit the proposed income tax incentive is not output-related and is based only on the investment made

Currently, accelerated depreciation benefit (80% in the first year) is available only to companies. It allows them to reduce their taxable profit in a given year if they invest in a solar plant and hold it on their balance sheet. As of now, individuals or households do not get any such benefit (refer to BRIDGE TO INDIA’s blog on how this is hurting the solar sector).

The new proposal is encouraging. The shape and form of the proposed tax incentive is not known, but broadly, it is expected to promote distributed solar generation for households and small commercial and industrial establishments by allowing individuals to offset their investment in solar rooftop plants against their taxable income. The idea is much more preferable to MNRE capital subsidies (30% subsidy provided by MNRE in principle to rooftop projects less than 100 kW) because subsidy disbursement process is marred by funding delays and bureaucratic procedures. However, the idea of tax incentives has room for improvement and needs to be thought through in more detail.

Like the accelerated depreciation benefit, the proposed income tax incentive is not output-related and is based only on the investment made i.e., it does not encourage quality in solar installations. Such tax incentives tend to incentivise short term decisions rather than the longer term investment approach befitting a long-lasting renewable energy installation. The Indian wind sector has grappled with this challenge. The second is that such tax benefits depend on the investor’s ability to absorb tax benefits and are not available to all investors thereby distorting the market. Why not decouple the tax benefit from the investment in the same way that, say a carbon credit or a renewable energy certificate can be traded independently of the power output? That would attract professional, financial investors who want to develop solar projects in special purpose vehicles which cannot utilise income tax or accelerated depreciation incentives. They are expected to be better at developing, financing and operating solar power plants because of their ability to bundle projects and their greater focus on quality and experience. This would drive down the cost of solar and create a level playing field.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.


Recent reports

India Solar Rooftop Map | December 2023

India Solar Rooftop Map | December 2023

India Solar Rooftop Map is an info-graphic report providing a snapshot of rooftop solar market in India – capacity addition across states and consumer segments, market share of leading players and other key trends. Total rooftop solar capacity is estimated to have reached 14,484 MW by end of 2023. Total new installations in 2023 are estimated at 2,856 MW, up only 8% over previous year.

India Solar Map | December 2023

India Solar Map | December 2023

India Solar Map 2023 is an info-graphic report covering growth of utility scale solar sector – national and state-wise commissioned and pipeline capacity, leading market players and portfolio details of top 16 project developers. Capacity addition in 2023 fell 51% YOY to 5,924 MW taking total utility scale solar capacity to 59,840 MW. Total project pipeline stands at a record 74,161 MW.

India Corporate Renewable Brief | Q4 2023

India Corporate Renewable Brief | Q4 2023

This report provides an update on key trends and developments in the corporate renewable market including capacity addition, key players, policy & regulatory issuance, financing, PPA tariffs and other market trends.

India PV Module Intelligence Brief | Q4 2023

India PV Module Intelligence Brief | Q4 2023

This report captures quarterly trends in module demand and supply, import and domestic production volumes, supplier market shares, break-up by technology and rating, global market scenario, pricing trends across the value chain, key policy developments and market outlook.

India Solar Compass | Q4 2023

India Solar Compass | Q4 2023

This report provides a detailed update of all key sector developments and trends in the quarter – capacity addition, leading players, tenders and policy announcements, equipment prices, financial deals and other market developments. It also provides market outlook for the next two quarters.

Inter-state OA — opportunities and challenges

Inter-state OA — opportunities and challenges

Inter-state transmission system (ISTS) open access (OA) renewable market is growing strongly on the back of multiple drivers including a waiver from ISTS charges together with decarbonisation pressure on corporates and streamlined transmission connectivity approval process. However, the ISTS route savings are viable only for projects commissioned by June 2026 (at least 75% ISTS charge waiver).

To top