GST Rationalisation on Electronics and Renewable Energy: A Step Towards Affordability and Sustainability

Introduction

On September 3, 2025, the Goods and Services Tax (“GST”) Council in its 56^th meeting made changes to the tax structure for several goods. These changes covered consumer electronics, household appliances, and renewable energy equipment. The new structure lowers the tax rate on some essential goods, which is expected to influence both household spending and the clean energy sector. The decision comes at a time when India is working to expand renewable energy and reduce the cost of electricity. At the same time, the government aims to keep everyday appliances within reach of more consumers. By cutting the GST on items such as solar panels, photovoltaic cells, and batteries, the Council has tried to reduce upfront costs and encourage wider use of such technologies.

Explanation

The Press Information Bureau (PIB) issued circulars[1] listing the specific changes. Goods such as air conditioners, dishwashers, televisions, monitors, projectors, and electric accumulators that were taxed at 28 percent will now fall under the 18 percent bracket. Two-way radios move from 12 percent to 5 percent. In renewable energy, the rate change is more significant. Solar panels, photovoltaic cells, and renewable devices will now attract only 5 percent GST, compared to the earlier 12 percent. Composting machines are also placed in the 5 percent category. These changes are meant to lower the cost of both household appliances and clean energy technologies.

Mercom India, a renewable energy research firm, has explained the likely impact of these changes. Renewable projects usually involve high upfront investment. Around 70 percent of project costs are goods, while the rest are services. Earlier, goods were taxed at 12 percent and services at 18 percent. With goods now at 5 percent, developers will see a clear reduction in total project costs. Estimates suggest that projects may save close to 4.9 percent of overall expenditure. This change will also affect tariffs. Developers bid for renewable projects in competitive auctions where cost differences, even small ones, shape the final tariff. A lower cost base allows developers to place bids at reduced rates. According to Mercom, tariffs may fall by two to five paise per kilowatt-hour. For bulk power supply, this difference can add up and make renewable electricity more competitive.

Another sector that benefits is energy storage. Non-lithium batteries, which were earlier taxed at 28 percent, are now placed in the 18 percent slab. Lower taxes on batteries will reduce costs for hybrid power projects and help balance renewable supply with demand. Affordable storage is important as India integrates more solar and wind into its power system. Households and small businesses are also expected to feel the impact. For consumers, lower tax on electronics like televisions and dishwashers makes such items easier to buy. For those interested in rooftop solar or composting solutions, the reduced GST will bring down installation and equipment costs. The combination of consumer relief and renewable adoption is in line with India’s energy targets, including the plan to achieve 500 GW of non-fossil fuel capacity by 2030.

There are, however, practical issues to consider. One is the inverted duty structure. In many cases, the tax on inputs is higher than the tax on the final product. This results in refund claims from developers. While refunds are allowed, delays in processing tie up capital and reduce cash flow. Another concern is that GST is only one part of the overall cost. Import duties on solar modules, currency fluctuations, and supply chain challenges also shape project economics. Unless these issues are managed, the benefit of tax cuts may not be fully realised.

Conclusion

The GST Council’s proposal to slash tax rates on electronics and renewable energy gear is a policy with immediate financial impacts. For consumers, it translates to cheaper appliances and access to technologies such as rooftop solar at lower prices. For developers, it lessens capital outlay and enables more competitive bidding in renewable auctions, which can bring down power tariffs. The move alone will not address every cost issue in the industry, as duties, imports, and supply chains still remain factors. But it is a significant pointer that tax policy can be employed to spur consumer expenditure as well as clean energy expansion. If executed smoothly, such reforms can help reduce electricity prices, aid small enterprises, as well as spur India’s clean energy ambitions.

[1] https://www.pib.gov.in/FactsheetDetails.aspx?Id=149274#:~:text=GST%20on%20Renewable%20Energy%20Devices,sustainability%20and%20green%20energy%20adoption.