Government to Impose 5 Percent Tax Under GST on Cables and Batteries for Solar Power

Due to the inverted duty structure, developers will first pay the higher tax and then claim a tax refund against the five per cent slab while filing the returns. The credit reversal will be possible only if the renewable energy project developer submits invoices to the government regarding procurement and tax paid.

The government is planning to spell out the effective tax rate under the Goods and Services Tax (GST) for supplies to solar power project developers.

These clarifications, expected to be issued soon, come after developers flagged the higher tax incidence on inverters, cables and batteries to the Ministry of New and Renewable Energy.

Industry response

Solar project developers were irked by inputs being placed under higher tax slabs than output under the GST regime.

Tax liabilities on inverters, batteries and insulated cables increased under the GST regime. The incidental tax rate on inverters under GST was hiked by 12 per cent to 28 per cent and the levy on cables was hiked from 18.12 per cent to 28 per cent. The tax on batteries has been kept at 18 per cent.

But renewable energy (including solar power) has been put under the five per cent slab.

“As far as inverters and cables are concerned, these are under 28 per cent duty. But whenever these are used as part of the solar power generation project, the person can claim the refund of GST paid by him. If products such as insulated cables are used in the solar generation system, these will attract an effective levy of 5 per cent otherwise they will attract a levy of 28 per cent,” an official told BusinessLine.

Due to the inverted duty structure, developers will first pay the higher tax and then claim a tax refund against the five per cent slab while filing the returns. The credit reversal will be possible only if the renewable energy project developer submits invoices to the government regarding procurement and tax paid.

This mechanism will allow better monitoring of installations and help ensure targeted support for clean energy projects. But this may result in constrained cash flows for project developers.