India considering tax incentives for solar households

India’s Ministry of New and Renewable Energy (MNRE) has issued a proposal to the Ministry of Finance for the introduction of tax incentives for homeowners who install solar panels on their rooftops.

Currently, there are no tax benefits available to homeowners who install a solar PV system on their rooftop. But the proposals are intended to promote distributed solar generation, with more and more residential systems feeding end-users closer to home.

The MNRE believes that a tax incentive, based on the size of the investment made, could help this market segment grow. India already has in place an accelerated depreciation benefit for up to 80% during the first year. This benefit is calculated on output, and is only available to companies, allowing them to reduce their tax burden in any given year.

Jasmeet Khurana of BRIDGE TO INDIA has called the new proposals encouraging, but warned that such tax incentives sometimes have the effect of incentivizing short-term decisions rather than longer-term investment – the latter approach being more conducive in tackling India’s current energy challenges.

"The shape and incentive of the proposed tax incentive is not known, but broadly, it is expected to promote distributed solar generation for households and small commercial and industrial establishments by allowing individuals to offset their investment in solar rooftop plants against their taxable income," said the consultant.

Because the proposed tax incentive will be based on the cost of the installation, the move does not encourage quality control, added Khurana, who argued that there is definite room for improvement in the planning stage. "The Indian wind sector has grappled with similar challenges," said Khurana. "Tax benefits depend on the investor’s ability to absorb the incentive and are not available to all investors, which can distort the market."

Khurana suggests decoupling the tax benefit from the investment, similar to how a carbon credit or renewable energy certificate can be traded, independent of the size of the power output.

India’s Ministry of Finance will discuss the proposals with the MNRE over the coming weeks, with a decision expected in the summer.