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Income Tax Benefits for Solar-Powered Homes in India

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July 18, 2023

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The smog season has started - marked by the blending of industrial and vehicle emissions with smoke from crop burning and firecrackers, coupled with lower winter temperatures. However, within this atmospheric challenge, hope is emerging atop the rooftops of India's vibrant cities: solar panels. 

Despite basking in ample tropical sunshine, India still predominantly relies on coal, contributing to air pollution that ranks among the world's most severe. Nevertheless, 2022 marked a turning point, with the country achieving a record-high solar energy installation.

India is turning heads as a renewable energy powerhouse by riding this solar wave. Sweetening the deal with tax perks, subsidies, and net metering incentives – it's not just a lightbulb moment; it's a yellow revolution for India! Have you installed a solar panel yet? 

This blog will dive deep into India's solar revolution, cost implications, and taxation relief. 

Solar Power Trend in India 

Simply put, solar-powered houses are residences that utilise solar energy as a primary or supplementary power source. In India, the adoption of solar panels for homes has been gaining momentum since 2019. 

For instance, the village of Modhera in Gujarat has become the first solar-powered village in India, with solar panels providing more energy than the town consumes. This initiative has led to energy self-sufficiency and become a source of income, as any surplus power generated can be sold back to the electric grid. 

In another example, the Soura (Sun) project in Kerala aims to install solar panels on 75,000 homes, contributing 350 megawatts of power to the state's grid. 

Installation Cost of Solar Panels in India 

The cost of solar panel installation in India varies depending on various factors, such as the type and model of the solar panels, the capacity of the system, and the installation accessories. 

On average, the standard solar panel installation cost is around ₹40,000, with the installation cost ranging from ₹7,000 per kilowatt for smaller systems to ₹35,000 per kilowatt for larger systems. The total cost includes solar inverters, batteries, mounting structures, and installation accessories. 

It's important to note that government subsidies and incentives can significantly offset the solar panel installation cost, and the payback period for solar energy systems is typically around 6-8 years. 

Reason for the Gradual Shift

Investing in solar panel installation can lead to long-term cost savings and reduced carbon footprints. This makes for a sustainable choice for households, farmhouses, and businesses with high electricity bills. 

Income Tax Implications of Solar Panel Installations  

In India, the installation of solar panels across residential, commercial, and industrial sectors is accompanied by various tax benefits. 

  • The government extends both direct and indirect incentives - encompassing safeguards on sales tax, inclusions of anti-dumping duties, exemptions from excise duties, and exceptions to customs duties. 
  • Project developers enjoy a ten-year income tax exemption on all project earnings, the ability to recover 40% of costs in the first year through accelerated depreciation (AD), and a ten-year income tax exemption for project developers. 
  • Under Section 80-IA of the Income Tax Act, 1961, solar power generating companies are granted a tax waiver on 100% of profits for ten assessment years from the initial assessment year. 
  • Additional exemptions cover sales tax, excise tax, and customs duty. 

Furthermore, implementing net metering incentives empowers residential and commercial customers to generate electricity with solar panels or photovoltaic systems to export surplus energy to the grid, reducing future electricity bills.

Check-list for Installing Solar Panels for Your Home

Roof Conditions

  • Solar panels typically boast a lifespan of 20-25 years. It's advisable to address roof issues, such as age or damage, before installing solar panels.
  • Make sure there's ample roof space to accommodate the solar panels.
  • Optimal electricity generation and prevention of debris accumulation are achieved with a north-facing roof slope.

Weight Capacity

  • Evaluate the roof's load-bearing capacity before proceeding with solar panel installation.
  • Choose solar panels that align with the roof's weight capacity to prevent damage.

Energy Consumption Analysis

  • Conduct a thorough analysis of your building's energy requirements based on the appliances and machinery used.
  • Standard solar panels typically comprise 36 to 72 PV cells, each providing approximately 0.5 V of power.

Monocrystalline vs. Polycrystalline

  • Solar panels are available in two main types – monocrystalline and polycrystalline.
  • Monocrystalline panels are generally considered more efficient due to the free movement of electrons within a single crystal of silicon. Efficiency levels may vary based on the specific make and model of the chosen solar panel.

Check Warranty

  • Most solar panels come with a life expectancy of 25 years. Always request and review warranty certificates when acquiring solar panels.
  • Warranty details typically include coverage for ten years on the product, 5 to 10 years on the inverter, 15 years for 90% peak energy output, and 25 years for 80% peak energy output.
  • The installation is safeguarded by a warranty of 2-10 years, which addresses repairs and the replacement of defective components within the stipulated timeframe.

How to Install a Solar Panel for Your Home?

To install solar panels in India, visit this website and follow the instructions: https://solarrooftop.gov.in/.

Future Hurdles 

While India's solar sector is on an optimistic growth trajectory, it must grapple with the reliance on Chinese imports. Striking a delicate balance is crucial: reducing dependency on affordable Chinese imports without hampering local solar capacity building. The challenge arises when there's a shortfall in cheap Chinese imports, and the local industry needs help to meet the surging demand. 

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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 and equipment, as well as energy-efficient appliances, is lower than 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 qualifies for tax benefits. The government also provides incentives for adopting energy-efficient appliances by charging a lower GST on them.

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 greatly depending on the type and scale of installing 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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