India slashes renewable energy taxes to 5%, opening door for global SMEs

India has cut its Goods and Services Tax (GST) on renewable energy equipment from 12% to 5%, creating significant opportunities for companies eyeing the world's third-largest energy market.

The tax reduction, announced by the GST Council in New Delhi on 4 September, comes into effect on 22 September 2025. It applies to a range of devices, plants and components, including solar cells, wind turbines, biogas plants, ocean energy devices and fuel-cell vehicles as part of India’s GST 2.0 reforms.

The government has also cut GST for non-lithium-ion electric accumulators from 28% to 18%.

“The GST Council’s decision to reduce the tax on renewable energy devices and key energy storage solutions is a transformative step for India’s green transition,” said Preeti Bajaj, managing director and CEO of Luminous Power Technologies, in a statement.

Accelerating solar development

The GST cut will reduce overall solar project costs from about 13.8% to 8.9%, making development roughly 4.9% cheaper, according to Mercom India. This change is vital as India pursues its target of 500 GW of non-fossil fuel capacity by the end of the decade. 

Gautam Mohanka, director at Gautam Solar, described the cut as “a pivotal step in accelerating India’s clean-energy transition [that] greatly increases the accessibility of solar installations for households, businesses and farmers”.

For companies in India’s clean energy supply chain, the move means reduced equipment costs and simpler taxation, which could give an added boost to the country’s rapidly growing clean energy market. According to a report by CareEdge Analytics and Advisory, India’s rooftop solar market is expected to grow at an average annual rate of 33% over the next two years, reaching an installed capacity of 30 GW by 2027, up from 17 GW in 2025.

The new tax structure also creates a stronger incentive for foreign SMEs to localise production through partnerships under the country’s Make in India programme.

The reform could cushion the impact of the recent 50% US tariffs on Indian exports by stimulating domestic demand and encouraging SMEs to diversify away from export-heavy models.