Solar EPC GST 2026: 5% Rate, HSN Codes and the 70:30 Rule

GST on solar in India sits between two policy goals that often pull apart: energy policy wants solar to be cheap, while the tax system long treated solar equipment like other manufactured goods.

The 56th GST Council meeting in New Delhi, chaired by Finance Minister Nirmala Sitharaman, changed that equation by reducing the GST rate on renewable energy devices and parts from 12% to 5%, effective September 22, 2025.

Quick answer. GST on solar PV cells and modules (HSN 8541 42 and 8541 43) in India fell from 12% to 5% on 22 September 2025. A turnkey solar EPC contract is valued under the 70:30 rule, 70% at 5% and 30% at 18%, for an effective rate of about 8.9%. Structures and cables stay at 18%. Not tax advice.

This guide covers the GST questions that affect an Indian solar EPC, from the moment raw materials arrive at the port to the final commissioning sign-off. The article follows the GST Clarity Stack, a five-layer check that helps an EPC see its GST cost and recovery position before signing a contract.

The Rate Change: What Moved and What Did Not

The September 2025 rate reduction applies specifically to the items covered under the government’s renewable energy device notification. Understanding the exact scope prevents the common mistake of applying the 5% rate to items that did not actually change.

Items now at 5% GST (reduced from 12%):

• Solar photovoltaic cells and modules (HSN 8541)
• Solar water heaters and systems
• Wind energy generators and windmills
• Biogas plants and parts
• Waste-to-energy plants and machinery
• Parts specifically intended for manufacture of these devices

Items that remain at higher rates:

• Standard electrical cables and conduits (18%, HSN 8544)
• Steel mounting structures (18%, HSN 7308)
• Inverters classified under HSN 8504 as static converters (18%), unless treated as part of a solar power device
• Lithium-ion batteries (18%)
• Other batteries such as lead-acid (reduced from 28% to 18%)
• Civil works materials such as steel at their own rates (cement fell from 28% to 18%)

Before and after rate comparison (indicative; confirm each HSN with your tax adviser):

Equipment Item	HSN Code	Pre-Sep 2025 GST	Post-Sep 2025 GST
PV cells and modules	8541	12%	5%
Solar inverters	8504 40	12% or 18% depending on classification	5% or 18% depending on classification
Mounting structures (MS)	7308 90	18%	18%
AC/DC cables	8544	18%	18%
Composite solar power generating system (supply + installation)	70:30 deemed split	70% at 12% + 30% at 18% (about 13.8%)	70% at 5% + 30% at 18% (about 8.9%)

The rate cut is significant but not universal. An EPC that reprices its bids assuming the whole BOM moves to 5% will underprice the project. For a turnkey solar power generating system billed as one supply, the 70:30 deemed valuation brings the effective rate from about 13.8% to about 8.9%.

What Is the HSN Code for Solar Panels? HSN Classification for EPCs

HSN (Harmonised System of Nomenclature) codes drive GST treatment. They determine the applicable rate, whether ITC is available, and how the transaction is described on the invoice. Solar EPCs must classify every item on their purchase orders and sales invoices correctly.

Chapter 85 of the CBIC GST tariff schedule covers electrical machinery and equipment, including PV cells and modules. Chapter 73 covers iron and steel articles, covering mounting structures. Chapter 85 also covers inverters, but their exact heading depends on whether they are classified as rectifiers, inverters, or static converters, a classification question that has been argued since GST began in 2017.

Critical HSN classifications for solar EPCs:

Item	HSN Heading	GST Rate	ITC Available?
Solar PV cells (mono/poly/bifacial)	8541 42	5%	Yes (for supply chain)
Solar PV modules	8541 43	5%	Yes (for supply chain)
Solar inverters (string/central)	8504 40	18%, or 5% if treated as a solar device part	Yes (for supply chain)
Mounting structures, hot-dip galvanized	7308 90 90	18%	Yes
DC combiner boxes	8537 10 99	18%	Yes
AC cables (below 1 kV)	8544 49 90	18%	Yes
Earthing materials	7408 / 7605	18%	Yes
Turnkey solar power generating system	70:30 deemed split	about 8.9% effective	Yes for the EPC; owner’s credit may be blocked
O&M services	9987	18%	Depends on the recipient

Input Tax Credit: What Solar EPCs Can and Cannot Claim

Input Tax Credit (ITC) is the mechanism by which a GST-registered business recovers the GST it paid on purchases against the GST it collects on sales. For solar EPCs, ITC eligibility is the single most important financial variable in project cost modeling.

ITC is available on:

• PV modules and cells purchased for supply to end customers
• Inverters, combiner boxes, mounting structures, cables purchased for project execution
• Engineering and design services procured from subcontractors
• Testing and commissioning services

ITC is blocked or restricted on:

• Works contract services received for construction of immovable property, except where the recipient uses them to supply a further works contract (Section 17(5)(c))
• Goods and services received by a person for constructing immovable property on its own account (Section 17(5)(d))

The key question is whether the commissioned system is immovable property, and who bears the block. Advance rulings have gone both ways on solar plants. Where the block applies, it usually lands on the owner building the plant on its own account. An EPC re-supplying a works contract can generally still claim ITC on its inputs.

Ground-mount utility-scale systems on leased agricultural land sit in a greyer zone. They are not embedded in a building, but the mounting piles and civil foundations can be argued as creating a fixture to land. The Central Board of Indirect Taxes and Customs (CBIC) has issued several clarifications on this point, but the interpretation varies by Advance Ruling Authority across states.

Practical ITC position for an EPC: GST paid on modules, inverters, structures, cables and subcontracted services is generally recoverable when the EPC uses them to make its own taxable outward supply, including a works contract. Section 17(5)(c) and (d) block credit mainly for the person constructing immovable property on their own account, which is usually the project owner, not the EPC. Whether a given plant counts as immovable property is a fact-specific question; take written advice before you model it.

The 70:30 Split: How Solar EPC Contracts Are Valued for GST

How a solar EPC contract is valued for GST is where many Indian EPCs misprice bids. Turnkey supply of a solar power generating system with installation is usually a composite supply.

For these contracts, an explanation added to Notification 11/2017-Central Tax (Rate) by Notification 24/2018 sets a deemed split: 70% of the gross consideration is treated as the supply of goods (now at 5%) and 30% as services (at 18%). This applies regardless of the actual cost breakdown on the invoice. The effective rate is about 8.9% after September 22, 2025, down from about 13.8%.

For PM-KUSUM Component C projects, where the RESCO developer installs the plant and sells power to the DISCOM under a 25-year PPA, the GST treatment of the EPC contract determines the developer’s full cost basis and therefore the floor tariff they can bid at competitive auctions.

IGST on Imported Solar Equipment: The Port-to-Project Cost

India’s domestic module manufacturing capacity has grown significantly since 2022, but many EPCs still import high-efficiency TOPCon, HJT, and bifacial modules from manufacturers in Southeast Asia and China when domestic supply is insufficient or when DCR (Domestic Content Requirement) exemptions apply.

Imported solar equipment faces a layered tax structure at the port:

1. Basic Customs Duty (BCD) and AIDC: After Budget 2025-26, solar modules carry 20% BCD plus 20% Agriculture Infrastructure and Development Cess (40% effective), and solar cells 20% BCD plus 7.5% AIDC (27.5% effective). Check the current CBIC customs tariff before bidding.
2. IGST on imports: 5% on PV cells and modules after the September 2025 change, matching the domestic GST rate.

The IGST can be claimed as ITC against output GST, so it is a cash-flow timing issue rather than a permanent cost. BCD and AIDC cannot be claimed and are a hard cost in the imported module price.

Worked example: imported module at USD 0.14/Wp (about ₹12/Wp at ₹85/USD), duty rates as above:

Cost Component	Amount per Wp
Assessable value	₹12.00
BCD + AIDC (40%)	₹4.80
IGST (5% of value + duties)	₹0.84
Total landed cost	₹17.64
IGST recoverable via ITC	(₹0.84)
Net effective landed cost	₹16.80

Compare that net figure against current domestic quotes for the same module class. For many projects price is not the deciding factor anyway: modules for government-backed, net-metered and open access projects generally must come from the ALMM list, which limits the use of imported modules.

The GST Clarity Stack: A Five-Layer Analysis Framework

The GST Clarity Stack is Heaven Designs’ internal framework for analyzing GST cost and recovery position on every new solar EPC bid. Each layer must be resolved before the project financial model is locked.

Impact on SECI and MNRE Tenders: What the Rate Cut Means for Bidding

The September 2025 GST rate reduction creates a direct opportunity for tariff reduction in SECI and MNRE-mandated tenders that use competitive tariff-based bidding. For most solar park projects the EPC contract is a turnkey supply, so the 70:30 deemed valuation applies rather than individual goods rates.

Some developers split module supply and installation into separate contracts. Under the 70:30 rule the GST gain from doing so is small, and tax authorities and advance rulings have often treated split contracts for one plant as a single composite supply. The comparison below shows why the split is rarely worth the legal risk on a ₹40 Cr, 10 MW contract with ₹20 Cr of modules (indicative):

Structure	GST basis	GST on ₹40 Cr
Single turnkey supply (70:30 deemed split)	70% at 5% + 30% at 18%	about ₹3.56 Cr
Split: ₹20 Cr modules at 5% + ₹20 Cr balance at 18%	Actual values	about ₹4.60 Cr

The right structure depends on the actual BOM and contract terms, so model both with your tax adviser before signing. Our bid-stage engineering checklist covers the other inputs that change a tender price.

The rate cut itself is the larger effect: on the same ₹40 Cr turnkey contract, GST falls from about ₹5.52 Cr (13.8%) to about ₹3.56 Cr (8.9%). In tight tariff-based tenders, that difference matters.

GST Exemptions for Government Solar Programs

Certain solar programs in India carry specific GST exemption notifications that override the standard rate schedule. EPCs working on these programs must track the rules carefully. Overcharging GST on exempt supplies creates liability for the EPC, while undercharging creates liability for the customer.

Key exempt categories:

• PM-KUSUM Component B (solar pumps for agriculture): solar water pumps fall under the 5% renewable energy device entry. Some implementation structures have argued for service exemptions; take written advice before relying on one.
• PM Surya Ghar Muft Bijli Yojana (household rooftop solar): supply and installation of a rooftop system is generally billed as a composite supply under the 70:30 rule.
• Projects for government bodies: concessional works contract entries for government were revised in the September 2025 changes, so confirm the current rate for each contract.

For a detailed breakdown of PM-KUSUM’s three components and how they affect engineering and procurement structures, see the PM-KUSUM explained guide. The regulatory treatment of RESCO models under GST is analyzed in the CAPEX vs OPEX vs RESCO framework guide.

Domestic Manufacturing and the Make-in-India Angle

The GST rate reduction for renewable energy devices works alongside the Production Linked Incentive (PLI) scheme for solar manufacturing and the Basic Customs Duty structure that protects domestic module and cell production. MNRE’s National Solar Mission targets aim for 500 GW of non-fossil capacity by 2030, with a large share expected from domestically made equipment.

The combination of 5% GST, 40% effective duty on imported modules and ALMM rules favors domestic supply. Integrated cell-to-module manufacturers supported under PLI benefit most.

For EPCs sourcing domestically, the 5% GST rate and full ITC recoverability on module procurement means the effective tax cost approaches zero for projects where the EPC charges 5% or higher GST on its output supply. The GST on modules paid on purchase is offset against GST collected on the EPC contract, so the module tax becomes a working capital timing item rather than a permanent cost.

With annual solar additions now in the tens of gigawatts (see our India solar market outlook), a 7-point cut on module GST is a large saving across the industry, though much of it is a cash-flow benefit for EPCs that recover ITC.

How Heaven Designs Helps EPCs Navigate GST on Solar Projects

GST on solar projects is more than a tax question. It affects engineering scope documentation, BOQ structure, contract drafting, and bid pricing. An EPC that gets the GST structure wrong on a large tender either loses the bid by pricing in GST it does not owe, or wins at a loss by missing a blocked credit.

Heaven Designs prepares engineering documentation with HSN codes from the first BOQ draft. We do not give tax advice; your tax adviser signs off the treatment.

• Solar Rooftop Detailed Engineering Design: full IFC BOQ with HSN codes, unit quantities and GST rate columns.
• Solar Ground Mount Design: utility-scale BOM documentation with DCR vs. non-DCR procurement flags and IGST cost modeling for imported equipment.
• Electrical CEIG Drawings: CEIG-ready drawings with equipment schedule and procurement specifications referenced to correct HSN classifications.
• MW-Scale PMC: owner’s engineer services, including flagging contract-structure questions for your tax adviser at bid stage.
• Download a sample deliverable: sample BOQ with HSN codes and GST rate mapping from a completed project.

Contact us to discuss BOQ and engineering scope for your current pipeline.

FAQ

What is the HSN code for solar panels from Waaree, Adani or other brands?

The HSN code depends on the product, not the brand. Assembled solar PV modules from any manufacturer, DCR or non-DCR, fall under HSN 8541 43 at 5% GST from 22 September 2025. Bare PV cells fall under 8541 42, also at 5%.

What is the GST rate on solar panels in India after the September 2025 change?

Solar photovoltaic cells and modules (HSN 8541) are now taxed at 5% GST, down from 12% from September 22, 2025, after the 56th GST Council meeting. Imported modules also pay 5% IGST at the port, on top of 20% BCD and 20% AIDC.

Can solar EPCs claim input tax credit on all purchases?

Solar EPCs can generally claim ITC on goods and services (modules, inverters, structures, cables, subcontracted works) used for their taxable outward supplies, including works contracts. Section 17(5)(c) does not block credit on works contract services used to supply a further works contract.

The block usually bites on the project owner, who builds the plant on its own account. Whether a specific plant is immovable property is fact-specific, so get written advice.

What GST rate applies to a complete solar EPC contract?

A turnkey contract for a solar power generating system is usually valued under the 70:30 rule: 70% of the consideration is taxed at the 5% goods rate and 30% at the 18% services rate, an effective rate of about 8.9%.

Splitting the contract into separate supply and installation agreements rarely lowers the total and can be challenged as one composite supply. Model both options with your tax adviser.

How does GST affect solar project financing and IREDA loans?

IREDA and other lenders financing solar projects assess project cost on a net basis, after accounting for GST recovery. For EPCs structuring project financing, the key metric is the effective GST cost after ITC recovery: the portion of GST paid on inputs that cannot be recovered because it is blocked under Section 17(5).

This unrecovered GST is a real project cost that lenders include in the total project cost basis. Modeling GST recovery wrongly can leave a project underfunded.

Does the GST rate cut apply to BESS (battery storage) systems?

Lithium-ion batteries, the dominant technology for grid-scale and C&I BESS, remain at 18% GST. Other batteries such as lead-acid were reduced from 28% to 18%.

For solar-plus-storage EPC projects, the module cost becomes cheaper but the BESS component GST is unchanged, shifting the blended GST rate toward the module rate only for the solar portion of the BOM.

What is the correct GST treatment for solar O&M service contracts?

Operation and maintenance services for solar power plants are classified under SAC 9987 (maintenance, repair, and installation services) and attract 18% GST. O&M service providers issue invoices at 18% GST and their clients (DISCOM, IPP, or C&I plant owner) can typically claim ITC on this GST if their own output supply is taxable.

Government bodies with limited ITC eligibility (such as DISCOMs providing subsidized agricultural power) may find O&M GST at 18% is a partial or full hard cost.

How does a solar EPC handle GST on imported mounting structures versus domestic supply?

Imported mounting structures face BCD at the rate for the steel article’s tariff heading, plus IGST of 18% (the same rate as domestic).

The BCD is a permanent cost; the IGST is recoverable as ITC against the EPC’s output GST. Domestically manufactured mounting structures at 18% GST are also fully recoverable as ITC. In most cases, domestic mounting structure procurement is financially preferable both for cost and for avoiding the port logistics and BCD exposure of imports.

For large utility-scale ground-mount projects requiring specific steel grades, confirm DCR compliance before specifying imported structural steel.

What documentation does an EPC need to defend its GST treatment in an audit?

An EPC audit for GST should be supported by: HSN classification rulings or advance authority opinions for disputed items (particularly inverters); the contract and the valuation basis used (70:30 or actual values); a reconciliation of input GST claimed as ITC against the invoices and GSTR-2B records for each project; the analysis behind any ITC blocking decision; and the project-level GST cost and recovery calculation used in the original bid model.

Keep complete project-level documentation; rate changes tend to draw closer scrutiny.