Solar Tax Benefits for Indian Businesses in 2026
For businesses, commercial solar is not just an energy investment — it's a tax planning tool. Between accelerated depreciation, profit tax exemption, and GST benefits, the effective cost of a solar installation can be reduced by 30-50% for a profitable business. Here's the complete 2026 guide.
1. Accelerated Depreciation — Section 32, Income Tax Act
This is the single biggest tax benefit for commercial solar in India.
- Solar power plants fall under the 40% depreciation block
- If commissioned and in use for more than 180 days in the financial year: 40% depreciation in Year 1
- If in use for less than 180 days: 20% depreciation in Year 1 (half rate rule)
Real Example — 100 kW Factory Solar (₹50 Lakhs)
| Item | Amount |
|---|---|
| System Cost | ₹50,00,000 |
| Depreciation (40% Year 1) | ₹20,00,000 |
| Tax Saved (30% bracket) | ₹6,00,000 |
| Annual Electricity Saving | ₹15,00,000 |
| Total Year 1 Benefit | ₹21,00,000 |
| Effective Payback Period | ~2.4 years |
Tip: Commission your solar plant before September 30 (before 180-day cutoff from April 1) to maximize Year 1 depreciation at 40%.
2. Section 80-IA — 100% Profit Tax Holiday
- Solar power generation businesses can claim 100% exemption on profits
- For any 10 consecutive years within the first 15 years of operation
- Available to companies/entities generating and distributing solar power
- Qualifying condition: Must have begun generation before cut-off date
- Most relevant for: IPPs, solar farm developers, large C&I solar with third-party sale
3. GST at 5% on Solar Systems
Solar power generating systems and components attract only 5% GST compared to 18% for most goods:
- Solar photovoltaic cells: 5% GST
- Solar modules/panels: 5% GST
- Solar inverters: 5% GST (as part of solar system)
- Solar batteries (standalone): 12% GST
- Installation charges: 5% GST (if bundled with supply)
This lower GST reduces your initial investment cost compared to other capital equipment.
4. State-Level Tax & Duty Benefits
| State | Benefit |
|---|---|
| Gujarat | Waiver on electricity duty for solar power plants |
| Karnataka | Property tax exemptions in select categories |
| Rajasthan | Electricity levy waiver for solar rooftop adopters |
| Maharashtra | Stamp duty exemption on solar plant agreements |
| Tamil Nadu | Assessment fee waiver for TANGEDCO solar connections |
5. CAPEX vs OPEX Model — Tax Implications
CAPEX (Own the system)
- Claim depreciation, Section 80-IA benefits
- Maximum long-term savings (20+ years)
- Best for: Profitable businesses with tax liability
OPEX/PPA (Third party owns, you pay per unit)
- Zero capital investment
- Monthly PPA payments are fully deductible as operating expenses
- No depreciation benefit (third party owner claims it)
- Best for: Businesses wanting to conserve capital, startups, loss-making entities
Budget 2026 Impact on Solar Tax Benefits
- No new dedicated solar tax deductions introduced in Budget 2026
- Customs duty reduction lowers system cost → lower depreciation base (smaller absolute tax saving, but better ROI)
- Accelerated depreciation (40%) continues unchanged
- Section 80-IA continues for qualifying power generators
How to Claim These Benefits
- Ensure solar system is capitalized correctly in your books as a Plant & Machinery asset
- Maintain installation and commissioning certificate from installer
- File depreciation claim in ITR under Schedule DPM
- For Section 80-IA: File Form 10CCB (audit report) for claiming profit deduction
- Consult a CA with renewable energy experience for maximum optimization