India Mulling Introduction Of Tax Incentives For Residential Solar

Indian homeowners who install solar energy systems may soon have tax breaks made available to them to help lower their burden, based on recent reports.

The country’s Ministry of New and Renewable Energy (MNRE) recently put forward a proposal for the introduction of tax incentives for residential rooftop solar installations. The Ministry of Finance is expected to reach a decision on the proposal sometime before the end of the summer.

Image Credit: India flag via Shutterstock

Given that there are currently no tax breaks available to residential solar energy system owners, the move by the Ministry is one that could have a notable effect — potentially spurring significant growth in distributed solar generation capacity, as is the MNRE’s aim.

As Bridge To India notes, this proposed income tax incentive is not output-related and is based entirely on the investment made — potentially leading to poorly constructed systems.

Such tax incentives tend to incentivise short term decisions rather than the longer term investment approach befitting a long-lasting renewable energy installation. The Indian wind sector has grappled with this challenge. The second is that such tax benefits depend on the investor’s ability to absorb tax benefits and are not available to all investors thereby distorting the market. Why not decouple the tax benefit from the investment in the same way that, say a carbon credit or a renewable energy certificate can be traded independently of the power output? That would attract professional, financial investors who want to develop solar projects in special purpose vehicles which cannot utilise income tax or accelerated depreciation incentives. They are expected to be better at developing, financing and operating solar power plants because of their ability to bundle projects and their greater focus on quality and experience. This would drive down the cost of solar and create a level playing field.

Good points. Honestly, though, any incentives would be a big improvement over the current state of affairs.

In related news, India’s installed solar capacity just recently crossed the 2.5 GW milestone (during the month of May). Growth hasn’t been common to all of the country’s regions, though. Nearly all of the capacity installed to date (70%) can be found in the deserts of the western states of Gujarat and Rajasthan. And nearly all of it is via large utility-scale projects — a situation that the (potential) new residential incentives can address.