GAME CHANGER: GST reduced on biogas, green energy equipments

In a major policy shift to promote clean energy, the Goods and Services Tax (GST) Council has cut the tax rate on renewable energy equipment from 12% to 5%. The decision, announced on Wednesday, covers solar cells, biogas plants, windmills, solar cookers, photovoltaic (PV) modules, waste-to-energy systems, solar lanterns, and tidal energy devices. Fuel cell vehicles, including hydrogen-powered trucks and buses, also benefit from the reduced slab, reinforcing India’s push for green hydrogen mobility.

The Central Board of Indirect Taxes and Customs (CBIC) said the move is aimed at boosting adoption and domestic manufacturing of renewable energy goods. India currently has the capacity to produce 100 GW worth of solar modules annually and is working to scale up solar cell production. Efforts are also underway to reduce dependence on imports of wafers and ingots, which largely come from China.

While these products faced an inverted duty structure—where inputs were taxed higher than finished goods—the CBIC noted that existing refund mechanisms and upcoming process reforms will ensure faster clearance of accumulated input tax credits.

The tax cut is part of a larger overhaul of the GST framework, under which the 12% and 28% slabs are being phased out. The Council intends to simplify the structure by merging most goods and services into either the 5% or 18% categories.

On the fossil fuel side, coal and lignite will now attract 18% GST, up from 5%. Although this could raise power generation costs, the impact is offset by scrapping the Rs 400 per tonne GST compensation cess on coal. The move is designed to simplify taxation ahead of the cess’s scheduled end in 2026 and to address past issues where input tax credits on cess payments were non-refundable.

By lowering renewable energy taxes while tightening levies on coal, the government aims to accelerate the transition to clean energy, reduce import dependence, and position India as a global hub for green technologies.