Unlocking Rooftop Solar's Tax Advantages

The Indian government has consistently shown unwavering commitment to expanding green energy usage within the country. As of 2023, the nation has successfully achieved a remarkable milestone of 70,096 MW in solar installations. Moreover, the government has set an ambitious target of reaching 500 GW of solar energy by 2030, marking a colossal leap from the current capacity of 70,096 MW (1 GW = 1000 MW). To encourage widespread adoption of solar energy across major industries, the government is offering a wide array of financial incentives and green initiatives.

Accelerated Depreciation (AD): Accelerated Depreciation (AD) provided by the Government of India to drive solar power adoption in corporate and private sectors. Under Section 32 of the Income Tax Act, companies can benefit from higher depreciation rates, commonly known as accelerated depreciation. While the standard depreciation rate for general machinery or plant is merely 15%, solar installations can avail up to 60% depreciation in the first year, contingent on the duration of usage.

If solar panels are operational for more than 180 days in a year, businesses can claim a 60% depreciation rate for those panels. Conversely, if the panels run for less than 180 days, they qualify for a 30% depreciation rate for that particular year. The remaining 40% can be claimed in the subsequent fiscal year. In essence, solar panels offer an accelerated depreciation totaling 100% of their cost within a span of just two years, making them an attractive investment proposition for businesses.

Below presents a comparison between the depreciation rates and tax savings for an investment of Rs. 1 crore in solar equipment versus general machinery.

CASE 1: The owner invests in general machinery/plant

Investment: Rs. 1,00,00,000

Depreciation rate: 15% annually

Year 1:

• Depreciation Claimed: Rs. 1 crore * 15% = Rs. 15 lakhs
• Taxable Income: Rs. 85 lakhs
• Tax Saved (assuming 30% corporate tax rate): Rs. 4.5 lakhs

Year 2:

• Depreciation Claimed: Rs. 1 crore * 15% = Rs. 15 lakhs
• Taxable Income: Rs. 85 lakhs
• Tax Saved (assuming 30% corporate tax rate): Rs. 4.5 lakhs

CASE 2: The owner invests in Solar panels

Accelerated Depreciation: 60% in the first year (if operational for over 180 days)

Regular Depreciation: 40% in the second year

Tax Savings for Solar Investment:

• Year 1:Depreciation Claimed: Rs. 1 crore * 60% = Rs. 60 lakhsTaxable Income: Rs. 40 lakhsTax Saved (assuming 30% corporate tax rate): Rs. 12 lakhs
• Year 2:Depreciation Claimed: Rs. 1 crore * 40% = Rs. 40 lakhsTaxable Income: Rs. 60 lakhsTax Saved (assuming 30% corporate tax rate): Rs. 18 lakhs

Total tax saved using general machinery = Rs. 9 lakhs

Total tax saved using solar = Rs. 30 lakhs

Capital Subsidies: The government also produces financial subsidies to residential and commercial consumers. At the end of 2022, GOI introduced the Rooftop Solar Programme Phase II, stating that the Ministry of New and Renewable energy will now be granting Central Financial Assistance for the installation of rooftop solar.. Consumers of this scheme will directly be able to avail the incentives in their bank account.

The subsidies are as follows and are simplified for your understanding:

Upto 3kW - ?14588/kW

3kWp-10kWp - ?7294/kW

More than 10kW - ?94822(Fixed)

RWA/GHS (upto 500kw) - ?7294/kW @ 10Wp/ house

To qualify for the grant, specific conditions need to be fulfilled:

• Complete implementation of the solar project must follow the procedures outlined on the national portal. From applying for the technical feasibility check to the actual installation, every stage must adhere to the portal's protocols.
• Consumers are required to have their systems installed by vendors registered in the state-wise list available on the portal.
• Exclusively domestically manufactured solar panels, including both modules and cells, should be utilized.
• Strict adherence to all MNRE guidelines and technical specifications is obligatory to meet the eligibility criteria.

Carbon Credits, also known as Carbon Emission Reduction (CER) credits, represent a tradable asset, with one credit equivalent to one metric ton of reduced greenhouse gasses. When an organization minimizes six out of ten greenhouse gases, including carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride, they become eligible to earn carbon credits. Similar to stocks in a market, these credits can be traded for monetary value in the carbon market. The process is more straightforward than the stock market - organizations reduce their carbon emissions, potentially through means such as adopting solar energy. Each metric ton of reduced greenhouse gas earns the organization a carbon credit, which can later be utilized for financial gain in the marketplace. Presently, there is considerable demand for these CERs in the European market, with numerous major organizations procuring these credits from Indian firms.

Solar energy serves as an instrumental means to mitigate and offset carbon emissions. The adoption of solar power systems enables substantial reductions in greenhouse gas emissions, particularly carbon dioxide, a primary contributor to global warming. By harnessing sunlight to generate electricity, solar energy drastically lessens dependency on fossil fuels, thereby cutting down on harmful emissions released during traditional energy generation processes. Implementing solar solutions, such as rooftop panels or solar farms, not only aids in reducing an organization's carbon footprint but also positions them to earn valuable carbon credits. This dual benefit of environmental conservation and potential financial gain underscores the pivotal role of solar energy in combating climate change while advancing sustainable practices.