GST casting a cloud over rising ‘green energy’ sun

The Indian renewable energy sector is experiencing a new-found euphoria with the central government’s keen focus on it. Given the government’s commitment to the sector and international and domestic investors’ interest, “green energy” is having a dream run. However, it is feared that the introduction of goods and services tax (GST), hailed to be the renaissance of taxation in India, could impede the sector’s growth by increasing the cost of setting up renewable energy projects by up to 20%.

The current indirect tax regime in India has produced a complex tax environment due to multiplicity of taxes, elaborate compliance obligations and tax cascading. To address these issues, GST, with the motto “one tax, one market”, is proposed to be introduced as a comprehensive consumption tax levied on the supply of all goods and services. GST would simplify the indirect tax regime by subsuming the majority of indirect taxes and assure a seamless credit chain by providing for cross-utilization of credits among goods and services, with minimal credit restrictions.

While the sale or consumption of renewable energy is proposed to be exempted from levy of GST, the introduction of GST is likely to result in withdrawal of various prevailing concessions and exemptions available for capital goods and input material used in setting up renewable energy projects. These withdrawals could significantly raise capital costs and consequently the cost of financing renewable energy projects.

Neeraj Menon is a partner at Trilegal and Anuja Tiwari is a counsel. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bengaluru and Hyderabad.