The recent application of Goods and Services Tax on the Energy sector has landed many companies in confusion as the clarity is still not made about availing the GST. Most of the companies in India are aware that the GST on the solar sector is applicable at the concessional rate of 5%. The Ministry of Power provided the reports, but the energy sector needs clarity for making it operational. Here are some top four criterions of applying GST on Solar Power Sector that will help in making few things clear:
Rate of GST Imposed on Energy Sector
According to government guidelines, the GST rate on solar sector varies between the tax slabs of 5%, 12%, 18% and 28%. However, the companies are still facing lots of confusion on its applicability as:
- Most of the components used in the Energy Sector are taxed higher whereas the Power Ministry states the concessional rate of 5%.
- The EPC cost will rise to almost 6% if the issue is not resolved on time.
- Most of the suppliers are still not clear on the application of the GST as some charges 5% and others may charge nearly 18%. Moreover, few of the providers know that it is 5% for end users and 18% charged on EPC companies.
The government has put the solar sector under the 5% tax bracket as they are actively promoting the clean and green environment. This move has been initiated in order to curb the pollution as well as reduce the usage of fossil fuels.
Taxation on Solar Power Components
The renewable-energy companies wanted the relaxation from GST, but the government was of the view that the improved dynamics and falling tariffs of the solar sector will be able to pay the required rates. Moreover, here are some of the solar power components that are kept under lower tax brackets:
- Devices based on Solar power
- Solar Water System and the Heater
- Generating System using the Solar Power
- Solar Lamps
- Solar Energy Operated Lanterns
Applicability of Tax on Solar Power Services
The services that fall under the Solar Power projects invite the taxation of 18% whereas the intended tax is just 5%. Here, the state and central government have cleared some of the confusions related to taxing applicability. The Solar Power sector components will attract the tax of 5% but the services like construction, erection of plants, civil works, etc. will invite the tax of nearly 18%. This will increase the tariffs and cost of capital goods, but the ministry has assured that the smooth conversion will help in making the required savings.
Resolving of Issues related to Solar Power Sector
The lack of clarity regarding the imposing of GST on the components and goods of the Solar Energy sector has left many companies in a dilemma. Most of the businesses are not able to understand the concept clearly and being taxed with 18% slab. The Ministry of Renewable Energy is evolving a mechanism and consulting with the Ministry of Finance to resolve the issues. However, this has affected more than 10 GW of India’s Solar Power project that is adding to more complexities.
To conclude, it can be said that the lack of clarity over the applicability of GST on solar power sector has drastically hit the power project that will prove unfavorable for the Solar Energy sector.