A ₹20 lakh solar installation at your fuel station, cold storage, or factory does not actually cost ₹20 lakhs — not if you claim the tax benefits available under Indian law.
Two benefits stack together:
- 40% Accelerated Depreciation under the Income Tax Act (Section 32) — reduces your taxable income by ₹8 lakhs in Year 1 alone on a ₹20 lakh system
- GST Input Tax Credit — if your business is GST-registered, you can claim back the GST paid on solar system components as ITC (panels at 5%, inverters and BOS at 12–18%)
Together, these can reduce your effective system cost by ₹3–5 lakhs on a mid-sized commercial installation. Most business owners either don’t know about them or don’t claim them correctly.
1. Accelerated Depreciation on Solar
What It Is
Under Section 32 of the Income Tax Act, solar energy equipment is classified as a “renewable energy device” and qualifies for 40% depreciation in Year 1 under the Written Down Value (WDV) method.
This is significantly higher than the standard 15% depreciation applicable to general plant and machinery.
Who Can Claim It
| Entity Type | Can Claim AD? |
|---|---|
| Private Limited / Public Limited Company | ✅ Yes |
| LLP (Limited Liability Partnership) | ✅ Yes |
| Partnership Firm | ✅ Yes |
| Proprietorship (with business income) | ✅ Yes |
| Individual (residential, non-business) | ❌ No |
| HUF | ❌ No |
You must be filing your taxes under the old tax regime with business income. Companies opting for the new concessional tax rate under Section 115BAA cannot claim additional depreciation — but can still claim normal depreciation.
Important: Consult your CA to confirm which regime your business is on before planning your AD claim.
How the Calculation Works
Solar systems depreciate under the WDV method — 40% each year on the remaining balance.
Example: ₹20 Lakh Solar System
| Year | Opening WDV | Depreciation @ 40% | Closing WDV | Tax Saved (@ 25%) |
|---|---|---|---|---|
| Year 1 | ₹20,00,000 | ₹8,00,000 | ₹12,00,000 | ₹2,00,000 |
| Year 2 | ₹12,00,000 | ₹4,80,000 | ₹7,20,000 | ₹1,20,000 |
| Year 3 | ₹7,20,000 | ₹2,88,000 | ₹4,32,000 | ₹72,000 |
| Year 4 | ₹4,32,000 | ₹1,73,000 | ₹2,59,000 | ₹43,000 |
| Year 5 | ₹2,59,000 | ₹1,04,000 | ₹1,55,000 | ₹26,000 |
| Total (5 Years) | ₹18,45,000 | ₹4,61,000 |
Tax savings of ₹4.6 lakhs over 5 years on a ₹20 lakh system — with ₹2 lakhs in the very first year.
At a 30% effective tax rate (for larger companies), the Year 1 benefit goes up to ₹2.4 lakhs.
The Real Impact on Payback Period
Without AD, a ₹20 lakh system saving ₹5 lakhs per year has a payback of 4 years.
With AD (NPV of tax savings ~₹3.8 lakhs discounted at 10%):
- Effective system cost: ₹20L − ₹3.8L = ₹16.2 lakhs
- Revised payback: ~3.2 years
AD alone shaves 8–10 months off your payback period.
2. GST Input Tax Credit on Solar
What It Is
If your business is GST-registered, you pay GST on solar system components at the time of purchase. Under the GST framework, this tax paid on business inputs can be claimed back as Input Tax Credit (ITC) — offsetting your GST liability on outward supplies.
How Much Can You Claim?
Close to ₹1.5 lakhs in GST recoverable on a ₹20 lakh installation — if your business has sufficient GST output liability.
Who Can Claim ITC
You can claim ITC if:
- Your business is GST registered
- The solar system is used for your taxable business activity (fuel station, cold storage operations, manufacturing, etc.)
- You have valid tax invoices from your EPC contractor
- Your EPC contractor has filed their GST returns and paid the tax
You cannot claim ITC if:
- The solar is for a residential building
- Your business is under GST composition scheme
- You are an exempt supplier (certain agricultural activities, etc.)
3. Combined Benefit: What It Looks Like in Practice
Scenario: 30 kWp Solar System for a Fuel Station or Cold Storage
| Item | Amount |
|---|---|
| System cost (ex-GST) | ₹21,00,000 |
| GST paid (blended ~9%) | ₹1,89,000 |
| Total invoice value | ₹22,89,000 |
| Less: GST ITC claimable | −₹1,89,000 |
| Less: AD tax saving (Year 1, 25% tax) | −₹2,62,500 |
| Less: AD tax saving (Years 2–5) | −₹3,28,000 |
| Effective cost over 5 years | ₹15,09,500 |
| Monthly energy savings | ~₹22,000–₹28,000 |
| Actual payback (with tax benefits) | ~2.8–3.2 years |
Without tax benefits, payback was 4.5 years. With them, it’s under 3.
4. How to Claim These Benefits
For Accelerated Depreciation
- Ensure your solar system is capitalised as a fixed asset in your books under “Plant & Machinery — Renewable Energy Devices”
- Apply 40% depreciation under the WDV method starting the year of commissioning
- If installation happens mid-year, first-year depreciation is prorated at 50% (i.e., 20% of asset value) if put to use for less than 180 days — full 40% if used for 180+ days
- Your CA will claim this in your ITR-6 (companies) or ITR-3/5 (firms/proprietors)
For GST Input Tax Credit
- Ensure your EPC contractor raises a proper GST tax invoice with HSN codes and your GSTIN
- Verify that the invoice appears in GSTR-2B (auto-populated from supplier’s GSTR-1)
- Claim the ITC in your GSTR-3B in the month you receive the invoice and goods
- Maintain documentation: invoice, commissioning certificate, asset register entry
What to Ask Your EPC Contractor
Before signing, verify:
- Are they providing GST-compliant invoices with correct HSN codes?
- Will they file GSTR-1 on time so your ITC reflects in GSTR-2B?
- Is the asset capitalized correctly to qualify for AD?
A good EPC partner handles this documentation proactively.
5. Common Mistakes That Cost Business Owners Money
Mistake 1: Treating solar as an expense, not an asset Some accountants book the solar installation as a maintenance expense rather than capitalising it. This means you get a one-time deduction but lose the AD benefit in subsequent years. Always capitalise.
Mistake 2: Missing the 180-day rule If your solar system is commissioned after September 30, you can only claim 50% of the AD in that financial year (20% of asset value instead of 40%). Plan commissioning before October for maximum Year 1 benefit.
Mistake 3: Not providing GSTIN to EPC at the time of order Your GST number must appear on the tax invoice for ITC to be claimable. Some customers forget to share it at the order stage and receive a B2C invoice — which cannot be used for ITC.
Mistake 4: Assuming ITC is automatic ITC is only claimable if your supplier (EPC company) has filed their GSTR-1. Always verify in GSTR-2B before claiming.
6. Real-World Context: Fuel Stations & Cold Storage
These two commercial segments have among the highest solar ROI in India — and the tax benefits make them even more compelling.
Fuel Retail Station (HPCL/BPCL/IOCL Dealer)
- Typical system: 25–40 kWp
- System cost: ₹18–28 lakhs
- AD benefit (Year 1, 25% tax): ₹1.8–2.8 lakhs
- ITC claimable: ₹1.2–1.8 lakhs
- Combined Year 1 benefit: ₹3–4.6 lakhs
- See a live example: HPCL Shri Durgha Fuels, Bengaluru →
Cold Storage Facility
- Typical system: 50–150 kWp
- System cost: ₹40–1.2 Crores
- AD benefit (Year 1, 25% tax): ₹4–12 lakhs
- ITC claimable: ₹3–9 lakhs
- Combined Year 1 benefit: ₹7–21 lakhs
- AIF Interest Subvention also available — read more →
Summary
| Benefit | Who Gets It | Typical Value (₹20L system) |
|---|---|---|
| Accelerated Depreciation (Year 1) | Companies, firms, proprietorships | ₹2.0–2.4 lakhs |
| AD benefit (Years 2–5) | Same | ₹2.6–3.1 lakhs |
| GST Input Tax Credit | GST-registered businesses | ₹1.2–1.8 lakhs |
| Total combined benefit | ₹5.8–7.3 lakhs |
On a ₹20 lakh system, that is a 29–37% reduction in effective cost through tax policy alone.
Want to Know the Numbers for Your Facility?
Techedge provides detailed financial projections for every commercial installation — including energy savings, AD benefit timeline, and ITC eligibility — before you sign anything.
Call: +91 98440 97096
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This article provides general information only and does not constitute tax or financial advice. Consult your Chartered Accountant for guidance specific to your business and tax situation.