Solar, Wind, Hydrogen Vehicles and Batteries Get Relief Under GST 2.0

In a landmark decision aimed at boosting India’s clean energy transition, the Goods and Services Tax (GST) Council has announced a sweeping reduction in tax rates for renewable energy devices and components. The GST on renewable energy has been cut from 12% to just 5%, effective immediately, significantly lowering the cost of solar panels, wind turbines, hydrogen-powered vehicles, and other green technologies.

At the same time, the GST Council increased taxes on coal and lignite from 5% to 18% to balance state revenues, underscoring a clear policy push away from fossil fuels and towards renewable energy adoption.

Union Finance Minister Nirmala Sitharaman said the reforms reflect India’s intent to “make renewable energy more affordable and accessible, while discouraging the dependence on polluting fossil fuels.”

What’s Cheaper Now Under the New GST Regime?

Under the revised structure, the following categories now attract just 5% GST:

• Renewable energy devices and parts: solar panels (PV cells), solar cookers, solar water heaters, biogas plants, windmills, wind-operated electricity generators, waste-to-energy systems.
  
• Hydrogen fuel-cell vehicles: including hydrogen-powered cars, buses, and trucks.
  
• Electric Vehicles (EVs): continue to enjoy 5% GST, maintaining affordability.
  

Additionally, the Council reduced the GST on non-lithium-ion batteries such as lead-acid, sodium, and flow batteries from 28% to 18%. These technologies are critical for grid-scale energy storage, enabling renewable power to be stored and used more efficiently. Lithium-ion batteries remain at 18%.

Why This Cut in GST on Renewable Energy Matters

For years, developers and analysts have argued that higher GST rates inflated the cost of clean energy projects in India. Reducing the GST on renewable energy from 12% to 5% could translate into:

• Lower capital costs for solar and wind projects.
  
• Cheaper electricity tariffs for consumers in the long run.
  
• Greater competitiveness of renewable energy against fossil fuels.
  
• Faster adoption of clean mobility, particularly hydrogen-powered public transport fleets.
  

Energy analysts suggest that the change could reduce project costs by up to 8–10%, making renewable power procurement far more attractive to both utilities and industries.

Balancing the Shift: Higher GST on Coal

To offset potential revenue losses from the green tax cuts, the Council raised the GST on coal and lignite from 5% to 18%. This move is expected to make thermal power costlier and encourage both industries and power producers to gradually shift towards renewable sources.

Given that 70% of India’s electricity still comes from coal, the increased GST also sends a strong price signal: fossil fuels will no longer enjoy artificially low taxation.

GST 2.0: Simplifying Tax for Growth and Green Energy

The tax cuts form part of the broader GST 2.0 reforms, which simplified the structure from four slabs to two — 5% and 18%. Consumer goods are expected to become cheaper as a result, boosting demand and economic activity.

For renewable energy, the benefits are two-fold: not only are devices cheaper, but the reduced tax regime makes it easier for project developers to plan long-term investments without the burden of fluctuating tax costs.

Industry and Expert Reactions

The renewable energy sector has widely welcomed the decision. Developers argue that the policy will accelerate India’s progress towards its 500 GW renewable energy target by 2030.

“Reducing GST on renewable devices and hydrogen vehicles to 5% is a game-changer,” said a senior energy analyst at HSBC Global Research. “It lowers upfront costs, reduces financial risks for investors, and ultimately makes renewable energy cheaper for end users.”

Industry leaders also believe the move will help India compete with countries like China in renewable manufacturing, where low costs have traditionally given them an edge.

India’s Power Mix: What’s Next?

According to HSBC projections, India is expected to commission:

• 36 GW of solar power
  
• 3.8 GW of hydropower
  
• 11.7 GW of thermal power
  

by FY26. The overall demand for electricity has already risen by 4.4% year-on-year in August 2025 and by 2% in July, highlighting the urgency of scaling up renewable generation.

With the new GST relief, solar and wind projects may accelerate, while higher coal taxes could gradually slow thermal expansion. This aligns with India’s commitment to net-zero emissions by 2070.

Hydrogen Vehicles Get a Big Boost

Another significant change is the reduction of GST on hydrogen fuel-cell vehicles from 12% to 5%. This places them on par with electric vehicles in terms of taxation, signaling government support for clean mobility diversification.

Hydrogen-powered buses and trucks, in particular, could see increased adoption in long-haul transport and public fleets, where battery-electric vehicles face limitations due to range and charging infrastructure.

A Green Growth Story

The Council’s decisions make it clear that India is steadily tilting the balance towards clean energy while creating disincentives for fossil fuel reliance. The combination of:

• Cheaper renewable devices
  
• Support for energy storage
  
• Affordable clean mobility solutions
  
• Higher coal taxation
  

positions India as a leader in the global energy transition.

As clean technologies become more cost-competitive, renewable adoption is expected to surge across households, industries, and utilities alike.

A Policy Shift With Far-Reaching Impact

The reduction of GST on renewable energy to 5% is not just a fiscal tweak — it represents a bold policy step that could reshape India’s energy economy. By making solar panels, wind turbines, hydrogen buses, and storage batteries more affordable, the government has created fertile ground for a green growth story.

Combined with the simultaneous rise in coal taxes, this signals a clear shift in priorities: cleaner, cheaper, and more sustainable energy for India’s future.

As the world’s fastest-growing major economy, India’s latest GST reforms highlight its commitment to ensuring that growth and sustainability go hand in hand.

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