Solar Investment Tax & Policy Guide: India 2026

Section 80-IA deduction

Section 80-IA of the Income Tax Act, 1961 allows a 100% deduction of profits for undertakings that begin producing electricity from renewable sources. The deduction is available for any 10 consecutive years out of the first 20 years following the year the plant begins operation.

• Who qualifies: Companies or LLPs that own and operate a solar power plant generating power for sale to a distribution company, to open access consumers, or for captive use
• Threshold: Generation capacity must be at least 1 MW for wind energy; no minimum explicitly stated for solar in the Act though MoF circulars suggest commercial scale
• Condition: The plant must begin generating power before March 31, 2026 (current sunset; renewals possible in Budget)
• Effective benefit: At a 25% corporate tax rate, a ₹1 crore profit saved from tax is ₹25 lakh in cash benefit per year

40% Accelerated Depreciation on solar assets

Under the Income Tax Act (Schedule II and Section 32 rules), solar power generating systems are classified in a special rate block and are eligible for 40% Written Down Value (WDV) depreciation in the year of commissioning.

Practical impact: A company investing ₹5 crore in a solar plant can claim ₹2 crore in depreciation in Year 1 alone, reducing taxable income by ₹2 crore. At 25% tax, this is a ₹50 lakh cash-flow benefit in the first year. For a profitable MSME or mid-cap company with sufficient taxable income, Accelerated Depreciation is often the single most valuable benefit of solar captive investment.

Minimum Alternate Tax (MAT) note: Book profits for MAT computation (Section 115JB) use a different depreciation rate (Companies Act Schedule II). AD benefit under IT Act does not reduce MAT liability. Companies in a MAT position need to evaluate the net tax saving carefully, often with a CA.

GST on solar installations (2026)

GST on solar energy devices and their parts has been a subject of multiple rate changes. Current applicable rates:

For C&I buyers who are GST-registered businesses, ITC (Input Tax Credit) on solar equipment purchased for captive use is typically available, provided the buyer is engaged in taxable supply of goods or services and the solar plant is a business asset. Consult your tax advisor on ITC eligibility specific to your business activity.

Capital gains on solar project equity

When investors acquire equity stakes in solar project Special Purpose Vehicles (SPVs) or registered solar investment platforms:

• Listed equity (BSE/NSE): Short-term capital gains taxed at 15% (holdings < 12 months); long-term at 10% above ₹1 lakh threshold (holdings ≥ 12 months)
• Unlisted equity (private SPV): STCG at applicable slab rate (holdings < 24 months); LTCG at 20% with indexation (holdings ≥ 24 months)
• InvITs (Infrastructure Investment Trusts): Distributed income is taxed in hands of unit holders at applicable rates. InvITs focused on renewable infrastructure have gained traction post 2020 SEBI regulations

Fractional solar ownership: tax treatment

Fractional ownership models — where investors hold a fractional economic interest in a solar project without holding direct equity in an SPV — are an emerging structure in India. The tax treatment depends on how the structure is legally constituted:

• Revenue sharing agreements: Periodic payments received by the investor are typically treated as "income from other sources" and taxed at the investor's applicable slab rate
• Dividend from SPV: Under the new IIT regime, dividends are taxed in the investor's hands at slab rate (DDT abolished from FY2020-21)
• Lease rentals: If structured as a lease to the operator, rental income is taxable at slab rate; depreciation may be available to the fractional owner

For a thorough assessment of your specific structure's tax treatment, consult a CA with infrastructure or renewable energy sector experience.

Budget 2026 highlights for solar

• PLI for solar cells (Phase II): PLI scheme for Advanced Chemistry Cells and solar cell manufacturing has been renewed. Domestic cell manufacturers approved under PLI can claim production-linked incentives, supporting ALMM-II compliance for EPC buyers who source from these manufacturers
• Custom duty and BCD structure: Basic Customs Duty on solar modules remains at 40% (to protect domestic manufacturers); cells at 25% — applicable to any project importing non-ALMM components
• Green bonds: RBI-issued Sovereign Green Bonds for solar/renewable projects have been issued at yields slightly below comparable g-secs. Retail investors can access via NSE/BSE SGB auctions
• Section 80EEA successor for solar: No direct replacement announced in 2026; investors should monitor Budget announcements for homeowner solar subsidy linkages