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Enjoy Tax Benefits for Energy-Efficient Home Improvements

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Created on
July 18, 2023

Summary

What’s Inside

Did you know India is one of the leading countries transitioning rapidly from fossil fuels to renewable sources to meet its energy needs? India has already achieved the goal of having a 40% share of power generation from non-fossil fuel sources a decade ahead of its 2030 timeline. One of the main reasons for this has been the income tax benefits that encourage individual citizens and organisations to opt for energy-efficient home improvements and renovations.

Tax benefits For Home Improvements

The government encourages individuals to adopt energy-efficient practices and technologies by providing income tax relief to those investing in green energy. 

1. Financial Support

Energy-efficient home improvements are subject to many tax benefits. Many exemptions of excise duties, loans at concessional rates for off-grid applications, custom duty concessions, sales tax safeguards and income tax exemption on profits for power generation are given. The excise duty on solar water heaters and systems ranges from NIL to 12% without CENVAT credit or 12.5% with CENVAT credit.

There are also partial or complete exemptions on excise duties on items like pig iron, copper wire, tin alloys, evacuated tubes and other components or equipment required to set up solar plants. Moreover, developers of solar power projects get a 10-year tax holiday which exempts them from paying income tax on all project earnings for a decade. IREDA also offered some financial assistance for setting up biomass power and bagasse cogeneration projects.

2. Subsiding Solar Installation 

To encourage installing solar energy systems on rooftops in urban and rural areas, many capital subsidies are given to the citizens through the SRISTI and SUABHAGYA schemes, which aim to provide free electricity to all homes.

3. Goods and Services Tax (GST) Benefits

The Goods and Services Tax Council has introduced a reduced GST rate for certain energy-efficient products and technologies. For example, LED lights, solar panels, and energy-efficient fans are charged lower GST than regular products. This GST reduction can help reduce the overall cost of purchasing and installing energy-efficient equipment.

4. Accelerated Depreciation

If you own a business or commercial property, the accelerated depreciation benefit allows you to depreciate your investment much more than general fixed assets. A claim of 80% depreciation in the first year for certain specific equipment can be made. This way, you can claim accelerated depreciation on energy-efficient improvements made to the property.

5. State and City Dependent Incentives

Many incentives and benefits vary state-to-state or depend on the cities as the local bodies grant them. This can include faster clearances, lower property taxes, and other incentives. 

For example, to encourage the energy audit in industrial, institutional, commercial and government buildings, the HAREDA has initiated a new scheme to bear 50% of the energy audit cost as financial assistance. Similarly, many states provide expedited environmental approvals for green-certified buildings. In several cities, solar or wind power buildings are permitted a greater FSI allowance.

Highlights of Energy-Efficient Home Improvements

Energy-efficient home improvements reduce energy consumption, save money on utility bills, and contribute to environmental sustainability. Even minor changes like substituting traditional incandescent or CFL bulbs with LED bulbs can be a simple, cost-effective upgrade. Simple initiatives like setting solar panels on your rooftop can lead not only to substantial savings alongside generating clean, renewable energy.

To Conclude

As we can see, you can enjoy a lot of incentives, discounts and tax benefits while doing good for nature and fighting climate change. For these improvements, you can use FI money to set your goals for home improvement. Fi Money, custom-built for digital natives, makes saving fun! It lets you set up fun FIT Rules, like 'Set aside ₹50 each time I order food online'. When the rule gets activated, Fi automatically saves your cash into a Smart Deposits. You can also assign a 'Goal Amount' you aspire to achieve: New PlayStation, Tokyo Vacay, etc. Powered by the licensed Federal Bank, Fi Money has an arsenal of features proving you don't have to be frugal to save up.

Frequently Asked Questions

1. What are the tax benefits available for energy-efficient home improvements?

You get many exemptions on excise duties. The GST on renewable components, equipment, and energy-efficient appliances is lower than the standard. Lastly, there are income tax exemptions on profits for power generation too.

2. Which home improvements qualify for tax benefits?

Installing solar energy systems or rooftop water heaters often qualify for tax benefits. The government provides incentives for adopting energy-efficient appliances by charging a lower GST on them too.

3. How do I claim tax credits for energy-efficient home improvements?

The tax reductions are observed through GST and other indirect forms of taxes. You can show an accelerated rate of depreciation of 80%. This doesn't require a separate form for claiming depreciation benefits.

4. Are there any specific requirements or certifications needed to qualify for tax benefits?

There is no one standard certification to qualify for tax benefits. It would depend on many variables like the type of income you are generating, your tax liability, the system you are installing, the state you live in, etc.

5. What is the maximum tax credit I can receive for energy-efficient home improvements?

This varies a lot depending on factors like the type and scale at which you install solar panels or other renewable energy sources. The tax and incentives also depend on the local governing body.

Disclaimer

Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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