The central government’s move to reduce the Goods and Services Tax (GST) on renewable energy equipment and services from 12% to 5% is expected to significantly lower the cost of clean energy projects across India. The reform is poised to make electricity more affordable while directly benefiting households, farmers, industries, and developers.
According to a statement from the Ministry of New and Renewable Energy (MNRE), the reduced GST rate will lead to substantial cost savings in utility-scale solar projects. A project that typically costs around ₹3.5–4 crore per megawatt (MW) could now save approximately ₹20–25 lakh per MW. For a 500 MW solar park, this translates into more than ₹100 crore in overall cost reductions—enhancing tariff competitiveness and boosting project viability.
The ministry said the lower tax rate is expected to bring down levelised tariffs for renewable energy, reducing the financial burden on distribution companies (DISCOMs) and leading to annual power procurement savings of ₹2,000–3,000 crore nationwide.
“The reform will make rooftop solar systems more affordable for households. A typical 3 kW rooftop system will now be cheaper by ₹9,000–10,500, making it easier for lakhs of families to adopt solar energy,” the release said.
This is also expected to accelerate adoption under the government’s PM Surya Ghar: Muft Bijli Yojana, aimed at promoting residential solar uptake.
Farmers stand to benefit as well. Under the PM-KUSUM scheme, the cost of a 5 HP solar pump—normally priced around ₹2.5 lakh—will decrease by nearly ₹17,500. With plans to deploy 10 lakh solar pumps under the scheme, cumulative savings for farmers could reach ₹1,750 crore, helping make irrigation both cheaper and more sustainable.
The ministry also noted that domestic manufacturers will gain from the tax rationalisation. It is expected to reduce the cost of solar modules and components by 3–4%, improving the global competitiveness of Indian-made equipment and supporting the Make in India and Aatmanirbhar Bharat initiatives.
With India targeting the addition of 300 GW of renewable capacity by 2030, even a modest 2–3% reduction in costs could unlock ₹1–1.5 lakh crore in investment capacity. Given that every gigawatt (GW) of manufacturing capacity supports roughly 5,000 jobs, the reform could generate between 5–7 lakh direct and indirect jobs over the next decade, further strengthening India’s clean energy ecosystem.
The environmental impact could also be significant. Each GW of solar power is estimated to save 1.3 million tonnes of CO₂ emissions annually. Faster project implementation enabled by lower GST could help avoid 50–70 million tonnes of CO₂ emissions per year by 2030.
“By making renewable energy more affordable and accessible, this reform aligns with India’s international commitments under the Paris Agreement and advances the national goal of 500 GW of non-fossil fuel capacity by 2030,” the ministry said.
The revised GST rates will come into effect on 22nd September 2025. The government expects the reform to benefit millions of consumers, farmers, developers, and manufacturers, contributing meaningfully to India’s twin goals of green growth and energy independence.
