Important: This page provides general awareness, not professional accounting, tax, or legal advice. Consult a qualified chartered accountant familiar with energy contracts before filing or structuring a transaction.
Is a solar PPA an operating expense or a capital lease?
For most SMEs in India, a solar PPA under an opex/RESCO model is treated as an electricity supply service contract, similar in structure to a utility bill. Under this treatment:
- The PPA payment is an operational expense (not a capital expenditure).
- The solar asset does not appear on your balance sheet (as title and risk remain with the generator under a typical RESCO/third-party ownership model).
- Payments are recurring and expensed in the period incurred.
However, if the contract has features that transfer substantial risks and rewards to the buyer (e.g., a bargain purchase option or guaranteed minimum payment structure), IndAS 116 or AS 19 lease treatment may apply. Your auditor will advise on this.
GST treatment of solar PPAs
| Element |
Typical GST treatment |
Notes |
| Electricity supply (tariff units) |
Exempt from GST |
Electricity as a commodity is exempt; this is the primary invoice line. |
| Wheeling / transmission charges |
GST applicable (18% typically) |
These are services provided by the transcos/discoms and are taxable. |
| O&M or service component (if separated) |
GST applicable |
If the PPA includes a service line item, it may attract GST at the applicable rate. |
| Interest or late payment charges |
GST applicable |
Financial charges in the PPA may be taxable if structured as a service. |
GST applicability depends on contract structure and prevailing GST council notifications. Confirm with your tax consultant.
How to book solar savings in your accounts
For an SME on a RESCO model with a fixed or indexed per-unit tariff, the practical accounting treatment is:
- Receive monthly invoice from the solar generator (or the wheeling entity).
- Book electricity purchase under existing power/utilities expense head (or a sub-ledger for renewable if you track clean energy separately).
- Book wheeling, transmission, and open access charges under the same or a separate expense code.
- If you previously received a subsidy from the DISCOM or state scheme, track the shift from DISCOM-subsidised power to third-party solar separately to report ESG or clean energy metrics accurately.
- If the PPA has an annual escalation clause, account for future payment changes in your budget models — these are not capital obligations under a standard opex PPA.
Questions to ask your accountant before signing
- Does any element of this PPA trigger IndAS 116 lease accounting?
- How should we record payments to the open access facilitator vs the generator?
- Are there GST input tax credit implications on wheeling charge invoices?
- If the project is partially financed by us (partial capex model), how is the capital contribution treated?
- Does our annual audit need to disclose this as an off-balance-sheet commitment?