Introduction
Solar energy adoption is growing fast in India. Many businesses and housing societies install rooftop solar panels. A key financial benefit is Investment Tax Credit (ITC) under GST. ITC helps reduce tax expenses by allowing credit for GST paid on solar components and services. This guide explains who can claim ITC, how to do it, and the legal framework supporting it.
What Is Input Tax Credit (ITC)?
ITC lets registered businesses deduct GST paid on purchases from their GST liability. Claiming ITC on solar systems can significantly lower the cost of green energy adoption. However, eligibility depends on proper GST registration and the solar setup qualifying as plant and machinery.
Who Can Claim ITC on Solar Systems?
Businesses and Industrial Units
Businesses using solar power for their own operations can claim ITC. This includes manufacturers, commercial complexes, and industries with rooftop solar systems used as part of their business process taxscan.in
For example, a company setting up a 440 kW rooftop solar system for captive power use was allowed ITC. The Gujarat Tax Authority ruled the system is not “immovable property” but qualifies as plant and machinery taxscan.in
Residential Users and Non-Commercial Entities
Typically, homeowners cannot claim ITC. To claim, the solar system must be connected to a GST-registered business. This usually excludes residential consumers unless they are part of a business entity or housing society with registered GST status.
Also Read best solar panel in india 2025
Legal Basis for ITC Eligibility
GST rules exclude ITC for tools used for immovable property. However, agencies like the AAR (Advance Rulings Authority) clarified rooftop solar systems are plant and machinery, not immovable property taxscan.in
This allows businesses to claim ITC under sections 16 and 17 of the CGST Act pioneerone.in
How to Claim ITC on Solar Installations
Step 1: Ensure GST Registration
Register under GST (if not already) as input credit claims require valid registration.
Step 2: Maintain GST-Compliant Invoices
Collect accurate invoices from suppliers and installers. These should include HSN/SAC codes, GST amount, and vendor’s GST number.
Step 3: Install and Commission the System
Complete the solar system installation and get interconnection with the grid (for self-use or captive consumption).
Step 4: Identify Solar System as Plant and Machinery
Ensure your finance or tax team classifies the solar system as plant and machinery. AAR rulings on this make it eligible for ITC bajajfinserv.in
Step 5: Input ITC in GST Returns
Claim ITC while filing monthly GST returns. The input credit will offset your output GST liability.
Step 6: Use Electronic Credit Ledger
The claimed ITC is shown in the Electronic Credit Ledger. This reduces future GST payments.
Common Issues and Legal Precedents
- Immovable Property vs Plant & Machinery
Many companies wrongly treated rooftop panels as immovable property. Rulings from Gujarat and Tamil Nadu confirm they are plant & machinery and thus ITC-eligible pioneerone.in - Exempt Electricity Supply
If the installed solar system is used for generating GST-exempt energy, ITC cannot be claimed pioneerone.in
Benefits of Claiming ITC on Solar Investments
- Reduced GST burden by offsetting GST paid on solar equipment.
- Lower project cost due to credit on solar inverters, panels, wiring, and installation services.
- Improved cash flow as ITC allows faster recovery of tax paid.
- Enhanced return on investment for solar systems by reducing payback period.
FAQs – Claiming Solar ITC in India
Q1: Can homeowners claim ITC on solar panels?
No. Only GST-registered businesses using solar power for their trade or operations can claim ITC.
Q2: Does ITC apply on installation and commissioning services?
Yes. The cost of installation and commissioning is also eligible, as the solar plant is treated as plant and machinery bajajfinserv.inartinenergy.com.
Q3: What if the solar plant feeds excess power to the grid?
If the supply of electricity is exempt under GST, ITC cannot be claimed economictimes
Q4: What documents are required to claim ITC?
GST invoices, proof of payment, commissioning certificates, and grid interconnection agreements.
Q5: How soon can I use the ITC?
Once you list the credit in your electronic ledger, it can be used to pay GST in the same or future return periods.
Conclusion
Claiming Input Tax Credit (ITC) for rooftop solar investments is a key advantage for businesses in India. Proper GST registration, accurate invoicing, system classification as plant and machinery, and timely filing of returns are essential. Legal rulings in Gujarat and Tamil Nadu support this benefit, helping reduce costs and improve solar project viability.
For your business or housing society, claiming ITC can make solar adoption more affordable and financially sound. Consult a tax expert to ensure compliance and best practices. By leveraging ITC, you’ll support green energy while achieving significant savings.
