With the GST being introduced, there is at least some bit of standardization on the taxes that will be levied. Initially there was tax exemption in certain states for Solar Products, however, with the introduction of GST, this has been standardized to have a common percentage (refer to our previous article).
With this being cleared up, let’s speak about the ‘Tax Holiday’ for solar which would continue. So, tax holiday is only on ‘Sale of Electricity’ (refer point iv). So the money Investors earn out of sale of electricity would remain tax free for a period of 10 years according to section 80-IA. But all this is paraphernalia in light of the developments that have taken place in the recent past. Any sensible business entrepreneur would look at the returns on the investment first and the benefits of the business later.
My concern with the introduction of GST is that the cost of setting up a Solar Power plant may go up. Of course, the number of layers of tax reduces, so we are yet to see whether an increased single tax but a reduction in the layers of taxes would mean an increase, stability or decrease in the overall cost of setting up a solar plant. Let’s suppose, that the cost does go up. In such a scenario, there might be a reduction in the Investors interested in Solar looking at the reduction in returns.
However, it is unlikely to have much impact in the consumers` demand (in high tariff states) for OPEX projects since they would still stand to gain. However, the states where the tariff is low, those states might drop out in demand. This may also tilt the balance in favour of CAPEX projects over OPEX. In my opinion, tax holiday has no meaning after all the exemptions are removed by introducing GST. What finally is decided before April 2017 will decide the success of PPA solar projects in India.
Until then, CAPEX and OPEX projects are both great as long as you install it before 2017. Make your move now, go solar. Get a free estimate.