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The government of India (GoI) has been promoting solar through incentives and aggressive targets. It set an ambitious target to install 100 GW of solar power by 31^st March 2022. Of 100 GW, 40 GW has been allocated to the rooftop sector. One of the hindrances to adapt solar has been high upfront capital investment. To address the issue and achieve the target, GoI launched capital incentives for Industrial and Residential segments in rooftop category.

Incentives for Businesses or Non Domestic Segments

For industries and commercial establishments, the subsidy is provided in the form of Accelerated Depreciation.

What is Accelerated Depreciation (AD)?

Depreciation is allowed as a percentage of fixed asset investment for expense calculations. The expense is used for calculating taxable income. The usual depreciation rate is 5 to 10% on general equipment. For solar plants, the government allows depreciation at the rate of 40 %. This increased depreciation rate is called Accelerated Depreciation.

Example:

A business invests on the solar plant of INR 10,00,000. Usually business (Industrial and commercial consumers) fall in the tax bracket of 30%.

Expenses and tax savings from AD

Tax Saving is Equivalent to ~10% subsidy on solar plant investment

This incentive helps to achieve quicker payback periods.

Incentives for Residential Consumers

Following customers get a subsidy as per the latest rules in March 2023

          All residential owners from

           1. Group houses (E.g.; multistoried apartments and RWAs)

           2. Individual houses

Institutional, educational and social segments (temples etc.,) have been discontinued from the subsidy scheme since March 2019.

For eligible category and general states, the subsidy is given as follows: 

  1.  40% of the benchmark cost up to 3 kWp solar system
  2.  20% of the benchmark cost for systems above 3 kWp

For special states (North-Eastern, Himachal Pradesh, Jammu & Kashmir and Uttarakhand)

             70% of the benchmark cost

5 Years’ Experience on Incentives

Positive in the Industrial Sector

In the industrial and commercial sectors, the accelerated depreciation is availed directly during the income tax submission. The benefit is valid for all brands of solar equipment and manufacturers. Therefore the consumers have been able to get the best on prices, quality, and service from market dynamics.

It helped to achieve ~95% year on year growth in solar installations in the industrial sector. Approximately 2,000 MW has been installed in the last 5 years in the segment.

Friction in the Residential Sector 

The problems in getting subsidies have been reported and well documented. PV Tech, a leading reporter on the solar industry, interacted with stakeholders in the industry on subsidy issues.  It lists that subsidies have been often been delayed. In some cases, consumers have not received subsidy over a year. Funds availability from government has been cited as the major reason for the delay.

Also, GoI has domestic content rules to provide subsidy in the residential sector. As per the rules, the residential consumer gets a subsidy only if they use panels manufactured in India. The delays in addition to domestic rules resulted in quality and performance issues. With the issues highlighted, the government trying to address them. It released quality standards for solar panels. Some states such as Delhi are working disbursement issue with guarantees etc.