Solar EPCs in India operate at the intersection of two financial systems that frequently contradict each other: the energy policy framework, which wants solar to be as cheap as possible, and the tax framework, which has historically treated solar equipment as a manufacturing input subject to standard goods tax rates. 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.
GST on solar PV equipment in India is now 5% following the September 2025 rate reduction from 12%. However, the headline rate tells only part of the story for EPCs. The critical issues are: which HSN codes attract the 5% rate versus 12% or 18%; whether input tax credit (ITC) can be claimed on solar project goods; how the 70:30 composite supply split applies to EPC contracts; and what IGST exposure looks like on imported modules and inverters. Getting these wrong costs EPCs 2–6% of project value on every bid.
This guide covers every GST dimension that affects 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 analysis framework that ensures no EPC signs a contract without full visibility of its GST cost and recovery position.
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 40 11 and 8541 40 12)
- 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 as power conditioning equipment (12% or 18% depending on classification)
- Battery storage systems — lithium-ion (12%)
- Non-lithium-ion batteries (reduced from 28% to 18% separately)
- Civil works materials (cement, sand, steel) — 12–18% depending on HSN
Field tip. The rate on inverters remains contested between EPCs and the GST department. Some inverters are classified under HSN 8504 (transformers and static converters) at 12–18%, while others are argued to be parts of solar energy devices at 5%. Get a written HSN classification ruling from your chartered accountant before billing large inverter supply contracts — a wrong classification on a ₹5 Cr inverter supply can trigger a ₹65 lakh demand notice.
Before and after rate comparison for a 1 MW solar project:
| Equipment Item | HSN Code | Pre-Sep 2025 GST | Post-Sep 2025 GST | Change on ₹4 Cr value |
|---|---|---|---|---|
| PV modules | 8541 40 11 | 12% | 5% | Save ₹28 lakh |
| Solar inverters (disputed) | 8504 40 | 12–18% | 12–18% (unchanged) | No change |
| Mounting structures (MS) | 7308 90 | 18% | 18% (unchanged) | No change |
| AC/DC cables | 8544 | 18% | 18% (unchanged) | No change |
| Civil and structural work | Works contract | 12% | 12% (unchanged) | No change |
The rate cut is significant but not universal. An EPC that reprices its bids assuming the full BOM moves to 5% will underprice the project and damage margins. The actual blended GST rate for a complete 1 MW ground-mount project — across all materials and civil work — typically moves from around 13.5% blended to around 11.5% blended after the module rate reduction. That is a real saving but a partial one.
HSN Code Classification: The Foundation of Correct GST Treatment
HSN (Harmonised System of Nomenclature) codes govern everything in GST — 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 dispute that has been active since GST introduction in 2017.
Critical HSN classifications for solar EPCs:
| Item | HSN Heading | GST Rate | ITC Available? |
|---|---|---|---|
| Solar PV cells (mono/poly/bifacial) | 8541 40 11 | 5% | Yes (for supply chain) |
| Solar PV modules | 8541 40 12 | 5% | Yes (for supply chain) |
| Solar inverters (string/central) | 8504 40 90 | 12% | 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 |
| Civil works (EPC contract) | 9954 (works contract) | 12% | Restricted |
| O&M services | 9987 | 18% | Restricted |
Watch out. If your EPC contract bundles equipment supply and civil installation under a single line item, the entire contract value may be classified as a works contract at 12% — even for the modules that would otherwise attract only 5%. The GST rules on composite versus mixed supply, and the treatment of works contracts under Section 2(119) of the CGST Act 2017, are where most EPC GST disputes originate. Always separate goods supply from civil works on your invoice structure.
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 an immovable property (Section 17(5)(c) of the CGST Act)
- Goods and services embedded in a supply that creates an immovable asset for the customer
- O&M services for systems owned by government bodies (specific exemptions apply under MNRE programs)
The critical distinction for solar EPCs is whether the system, once commissioned, becomes an immovable property. Under GST law, rooftop solar panels that are bolted to a building structure and connected to the building’s electrical system are typically treated as becoming part of the immovable property. This means the EPC that installed them cannot claim ITC on the construction services component.
Ground-mount utility-scale systems on leased agricultural land sit in a grayer 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 a 5 MW C&I solar EPC contract:
| Cost Category | Value | GST Rate | GST Amount | ITC Recoverable? |
|---|---|---|---|---|
| PV modules supplied | ₹8 Cr | 5% | ₹40 lakh | Yes (offset against output GST) |
| Inverters supplied | ₹2 Cr | 12% | ₹24 lakh | Yes |
| Mounting structures | ₹1.5 Cr | 18% | ₹27 lakh | Yes |
| Civil and installation works | ₹2 Cr | 12% | ₹24 lakh | Restricted (immovable property) |
| Cables and BOS | ₹1 Cr | 18% | ₹18 lakh | Yes |
| Total GST on inputs | ₹14.5 Cr | ₹133 lakh | ~₹109 lakh recoverable |
The ₹24 lakh GST on civil works is a real cost that cannot be recovered via ITC — it must be priced into the project margin.
The 70:30 Split: How Works Contracts Are Valued for GST
The “works contract” treatment under GST is where Indian solar EPCs lose the most money due to misclassification. A works contract is defined as a contract involving supply of goods as well as services, where the supply results in the construction of an immovable property. Solar EPC contracts for rooftop and ground-mount systems typically qualify as works contracts.
Under GST’s works contract provision, the composite supply is taxed at 12% — but the split between the goods component and services component affects the ITC chain for the customer.
The 70:30 split rule is an administrative rule that some states and Advance Ruling Authorities have applied: 70% of the contract value is attributed to goods supply and 30% to services (labor, civil work). This split matters for customers who are government bodies (DISCOMs, SECI projects) and who must determine their ITC eligibility.
Definition. Under Section 2(119) of the CGST Act 2017, a works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property, wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. Solar power plant construction meets this definition in most jurisdictions.
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 works contract GST treatment 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:
- Basic Customs Duty (BCD): Currently 40% on solar cells, 25% on solar modules (implemented via the MNRE import duty notification to support domestic manufacturing).
- IGST on imports: 5% (for PV cells and modules post-September 2025 rate reduction, matching the domestic GST rate).
- Social Welfare Surcharge: 10% of BCD.
- AIDC (Agriculture Infrastructure Development Cess): Applicable on some categories.
The IGST component (item 2 above) can be claimed as ITC against output GST on the EPC contract — effectively making it a cash-flow timing issue rather than a permanent cost. The BCD (item 1) cannot be claimed as ITC and is a hard cost embedded in the imported module price.
Effective cost of an imported 600 Wp TOPCon module at USD 0.14/Wp (approximately ₹35/Wp at current exchange rates):
| Cost Component | Amount per Wp |
|---|---|
| CIF module price | ₹35.00 |
| Basic Customs Duty (40% on cells, 25% on modules — blended) | ₹8.75 |
| Social Welfare Surcharge (10% of BCD) | ₹0.88 |
| IGST (5% of assessable value + BCD) | ₹2.23 |
| Total landed cost | ₹46.86 |
| IGST recoverable via ITC | (₹2.23) |
| Net effective landed cost | ₹44.63 |
At ₹44.63/Wp versus a domestic equivalent at ₹22–28/Wp (post-rate reduction), the economics strongly favor domestic procurement for most standard efficiency classes. However, for ultra-high-efficiency formats (22.5%+ bifacial with low temperature coefficient) where no domestic equivalent exists, imports remain cost-competitive when performance gain justifies the landed cost premium.
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.
Contract Structure Classification
Determine whether the contract is a pure goods supply, a pure services contract, or a works contract. The classification determines which sections of the CGST Act apply, what ITC the customer can claim, and whether the 12% works contract rate or individual goods rates apply.
HSN Code Assignment and Rate Mapping
Assign the correct HSN code to every line item in the project BOM. Map each HSN to its current GST rate, confirm whether the item qualifies for the September 2025 rate reduction, and flag any items subject to active classification disputes (particularly inverters and hybrid storage equipment).
ITC Eligibility Assessment
Identify which purchase categories generate recoverable ITC and which are blocked under Section 17(5). For EPC contracts where the output is an immovable property, separately bucket civil works GST as an unrecoverable cost in the project financial model. Never assume 100% ITC recovery on a turnkey solar contract.
Import Duty and IGST Modeling
For projects using imported equipment, model the full landed cost including BCD, SWS, and IGST. Separate the IGST (recoverable as ITC) from BCD (permanent cost). For DCR-mandated projects under PM-KUSUM or SECI tenders, confirm domestic procurement is feasible within the budget or obtain the relevant DCR exemption.
Net GST Cost Computation and Bid Price Finalization
Sum all GST costs (paid on purchases minus recoverable ITC) to derive the net GST burden as a percentage of contract value. Add this net GST cost to the project cost base before applying the margin. This is the number that determines whether the EPC wins the tender at a sustainable margin or wins at a loss.
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. Per the SECI tender documentation framework, the EPC contract for most solar park projects is structured as a works contract — meaning the blended GST rate applies rather than individual goods rates.
However, the procurement contracts for modules specifically — whether signed directly by the RESCO developer or through the EPC — can be structured as pure goods supply contracts, qualifying for the 5% module rate and generating ITC for the developer. This requires a bifurcated contract structure: a separate module supply agreement at 5% GST, and a separate EPC installation agreement at 12% works contract rate.
The financial benefit of the bifurcated structure on a 10 MW SECI project:
| Structure | Module Value | GST on Modules | Blended GST on Full ₹40 Cr EPC |
|---|---|---|---|
| Single works contract | ₹20 Cr | 12% (works) | 12% × ₹40 Cr = ₹4.8 Cr |
| Bifurcated (modules + EPC separate) | ₹20 Cr at 5% + ₹20 Cr at 12% | ₹1 Cr + ₹2.4 Cr | ₹3.4 Cr |
| Saving via bifurcated structure | ₹1.4 Cr per 10 MW |
At ₹1.4 Cr per 10 MW, the structural saving is meaningful — equivalent to approximately 3.5 paise/kWh of generation cost reduction over a 25-year project life at 1,600 kWh/kWp annual yield. In a SECI tender where the L1 bid often wins by margins of 5–10 paise/kWh, this GST optimization can be the difference between winning and losing.
See how Heaven Designs structures BOM and contract documents for GST optimization
Download our sample IFC engineering package — includes BOQ with HSN codes, GST rate columns, and ITC eligibility flags for a completed C&I solar project.
Get the sample pack →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 exemptions 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): Supply of solar pumping systems to government entities and state agencies for agricultural use is exempt from GST under Notification 12/2017-CT(R) for pure services to government, subject to the specific implementation structure.
- PM Surya Ghar Muft Bijli Yojana (household rooftop solar): Supply and installation to individual residential consumers under DISCOM-facilitated programs may qualify for reduced rates under the composite supply rules.
- Projects for government bodies (DISCOMs, NTPC, SECI as principal): Works contract services supplied to the Central Government or State Government or Union Territory or Local Authority are subject to GST at 12%, even where the underlying goods would attract a lower rate independently.
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.
WINNERS FROM THE RATE CUT
- Domestic module manufacturers with competitive 5% supply pricing
- C&I EPCs running large volume module procurement (savings of ₹28+ lakh per MW)
- RESCO developers modeling 25-year LCOE under PM-KUSUM
- Residential solar installers sourcing panels domestically
WHO NEEDS TO REMODEL FINANCIALS
- EPCs with signed contracts based on pre-September 2025 rates — price adjustment clauses apply
- Importers of non-DCR modules — still facing 40% BCD that dwarfs the 7% GST saving
- BESS EPCs — battery storage rates did not change for lithium-ion
- O&M service providers — service rates unchanged at 18%
Domestic Manufacturing and the Make-in-India Angle
The GST rate reduction for renewable energy devices is explicitly designed to complement 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 require 500 GW of renewable energy by 2030, with a significant portion expected from domestically manufactured equipment.
The combined effect of 5% GST on domestic modules plus 40% BCD on imported modules creates a strong price advantage for domestic supply. Companies like Waaree Energies, Adani Solar, and Premier Energies — which have invested in integrated cell-to-module manufacturing under PLI — benefit from a competitive cost structure that can now be priced into tenders at lower tariff floors.
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 — the module tax becomes a working capital timing item rather than a permanent cost.
According to Mercom India’s 2025 market tracker, India installed over 35 GW of solar capacity in FY 2025 — a record that will push annual module procurement above ₹70,000 Cr. The 7% GST reduction on modules alone represents a potential annual industry saving of approximately ₹4,900 Cr at full deployment scale.
How Heaven Designs Helps EPCs Navigate GST on Solar Projects
GST compliance on solar projects is not just a tax question — it directly 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 (if it prices in unnecessary GST costs) or wins at an unsustainable margin (if it fails to model blocked ITC correctly).
Heaven Designs delivers engineering documentation that is GST-ready from the first BOQ draft:
- Solar Rooftop Detailed Engineering Design — Full IFC BOQ with HSN codes, unit quantities, and GST rate columns structured for bifurcated supply and installation contracts.
- 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 contract structure review and GST risk identification during bid stage.
- Download a sample deliverable — Sample BOQ with HSN codes and GST rate mapping from a completed project.
Contact us to discuss how the September 2025 rate changes affect the financial model on your current pipeline of projects.
FAQ
What is the GST rate on solar panels in India after the September 2025 change?
Solar photovoltaic cells (HSN 8541 40 11) and modules (HSN 8541 40 12) are now taxed at 5% GST, reduced from 12% effective September 22, 2025, following the 56th GST Council meeting decision. This rate applies to domestically manufactured and imported modules alike — imported modules also pay IGST at 5% at the port, in addition to the Basic Customs Duty of 25% on modules.
Can solar EPCs claim input tax credit on all purchases?
Solar EPCs can claim ITC on goods purchases (modules, inverters, mounting structures, cables) that are used for taxable outward supplies. However, ITC is blocked under Section 17(5)(c) of the CGST Act 2017 on works contract services received for construction of an immovable property. The civil works and installation component of a solar EPC contract — where the resulting installation becomes an immovable property — typically generates blocked ITC. EPCs must bucket this non-recoverable GST as a hard project cost in their financial models.
What GST rate applies to a complete solar EPC contract?
A complete solar EPC contract — covering supply, installation, testing, and commissioning — qualifies as a works contract under Section 2(119) of the CGST Act 2017. Works contracts for construction of civil structures and installations are taxed at 12%. This composite rate of 12% applies to the full contract value, regardless of the underlying goods rates of individual components. To access the lower 5% module rate, EPCs need to bifurcate the contract into a separate module supply agreement and a separate installation services agreement.
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. Incorrectly modeling GST recovery can result in a project being underfunded by 1–3% of total cost.
Does the GST rate cut apply to BESS (battery storage) systems?
Lithium-ion batteries — the dominant technology for grid-scale and C&I BESS systems — remain at 12% GST. The September 2025 rate cut did not change the lithium-ion battery rate. Non-lithium-ion batteries (lead-acid, flow batteries) were reduced from 28% to 18% separately. Fuel-cell vehicles were reduced to 5%. 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 of approximately 7.5–15% (depending on the steel category) plus IGST of 18% (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); bifurcated contracts where module supply and civil works are separately invoiced; a reconciliation of input GST claimed as ITC against the invoices and GSTR-2B records for each project; evidence of the immovable property classification analysis for ITC blocking decisions; and the project-level GST cost and recovery calculation used in the original bid model. Tax authorities have begun scrutinizing solar EPC returns more closely since the rate change — maintaining complete project-level documentation is essential.
