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One of the most common questions we receive from customers across Tamil Nadu is about GST on solar installations: "Is it really just 5%?" The answer is yes, but with important nuances about what exactly attracts the concessional 5% rate, what falls outside it, and how it impacts your total project cost. Getting this right matters because the difference between 5% and 18% GST on a Rs 3 lakh system is Rs 39,000 — a significant amount.
This guide explains the GST structure for solar equipment in India as it stands in 2026, with practical implications for homeowners and businesses in Tamil Nadu planning a solar installation.
The 5% Concessional GST Rate
The Government of India, through the GST Council, has classified solar energy equipment under a concessional 5% GST rate to promote renewable energy adoption. This was a deliberate policy decision to keep solar affordable.
What Attracts 5% GST
The following items fall under HSN code 8541 (photovoltaic cells and modules) and related categories at 5% GST:
| Component | HSN Code | GST Rate |
|---|---|---|
| Solar photovoltaic cells (assembled or not) | 8541 40 11 | 5% |
| Solar photovoltaic modules/panels | 8541 40 12 | 5% |
| Solar power generating systems | 8541 (composite supply) | 5% |
| Solar inverters | Part of solar power system | 5% (when sold as part of system) |
| Solar mounting structures | Part of solar power system | 5% (when sold as part of system) |
| Solar cables and connectors | Part of solar power system | 5% (when sold as part of system) |
| Solar charge controllers | 8504 40 | 5% |
| Solar batteries (for off-grid/hybrid) | Part of solar power system | 5% (when sold as part of system) |
The Critical Distinction: Composite Supply vs Individual Components
This is where most confusion arises. The 5% rate applies to solar power generating systems as a composite supply — meaning when you buy a complete solar system (panels + inverter + mounting + cables + installation) from a single vendor as one package, the entire package attracts 5% GST.
However, if individual components are purchased separately, some may attract higher GST rates:
| Component Sold Separately | GST Rate |
|---|---|
| Solar panels/modules (standalone) | 12% |
| Solar inverter (standalone) | 12% |
| Mounting structures (standalone steel/aluminium) | 18% |
| Electrical cables (standalone) | 18% |
| Batteries (standalone) | 18% |
| Installation services (standalone) | 18% |
This is why buying a turnkey solar system from a single vendor is almost always more cost-effective than purchasing individual components and hiring separate installation labour. The turnkey approach qualifies as a composite supply at 5%, while piecemeal procurement can result in blended GST rates of 12-18%.
How the 5% GST Impacts Your Total Cost
Residential System Example (3 kW)
| Cost Component | Amount (pre-GST) | GST Rate | GST Amount |
|---|---|---|---|
| Turnkey from single vendor | Rs 1,80,000 | 5% | Rs 9,000 |
| Total cost | Rs 1,89,000 |
If purchased as separate components:
| Component | Amount (pre-GST) | GST Rate | GST Amount |
|---|---|---|---|
| Solar panels | Rs 90,000 | 12% | Rs 10,800 |
| Inverter | Rs 35,000 | 12% | Rs 4,200 |
| Mounting structure | Rs 20,000 | 18% | Rs 3,600 |
| Cables and accessories | Rs 10,000 | 18% | Rs 1,800 |
| Installation labour | Rs 25,000 | 18% | Rs 4,500 |
| Total | Rs 1,80,000 | Blended ~14% | Rs 24,900 |
Difference: Rs 15,900 more in GST for the same system when purchased as individual components.
Commercial System Example (50 kW)
| Procurement Method | System Cost | GST | Total |
|---|---|---|---|
| Turnkey (5% GST) | Rs 25,00,000 | Rs 1,25,000 | Rs 26,25,000 |
| Separate components (blended 14%) | Rs 25,00,000 | Rs 3,50,000 | Rs 28,50,000 |
| Savings from turnkey | Rs 2,25,000 |
Input Tax Credit (ITC) Considerations
For Businesses
If you are a GST-registered business, you can claim Input Tax Credit on the GST paid on your solar system. This effectively makes the GST cost-neutral for businesses:
- You pay 5% GST on the solar system
- You claim this 5% as ITC against your output GST liability
- Net GST cost to you: zero
This is a significant advantage for commercial and industrial solar installations. The solar system cost in your financial projections should be calculated on the pre-GST amount.
For Residential Consumers
Residential consumers (individuals not registered for GST) cannot claim ITC. The 5% GST is an actual cost addition. However, the PM Surya Ghar subsidy is calculated on the system cost inclusive of GST, so the subsidy partially offsets the GST burden.
ITC on Separately Purchased Components
If a business purchases components separately at 12% or 18% GST, the higher ITC claim offsets the higher GST paid. So for businesses, the net cost impact of purchasing separately vs turnkey is minimal (both result in zero net GST cost after ITC). The primary beneficiary of the 5% composite supply rate is the residential consumer who cannot claim ITC.
Common GST Scenarios and Clarifications
EPC Contracts for Large Systems
Engineering, Procurement, and Construction (EPC) contracts for solar installations above 100 kW are typically treated as works contracts attracting 18% GST — not 5%. However, if the contract is structured as a "supply of goods" (solar power generating system) with installation being incidental, the 5% rate may apply.
Practical advice: Ensure your contract with the EPC provider is structured as a composite supply of solar power generating system (5% GST) rather than a works contract for construction and installation of solar equipment (18% GST). The contract wording matters significantly.
Solar with Battery Storage
Batteries sold as part of a solar power generating system (hybrid or off-grid) attract 5% GST as part of the composite supply. However, standalone battery storage systems (without solar panels) may attract 18% GST. If you are adding battery storage to an existing solar system later, the battery may be treated as a separate supply at 18%.
Practical advice: If you plan to include battery storage, procure it as part of the initial solar system package from the same vendor to benefit from the 5% rate.
Solar Panel Cleaning Services
Maintenance and cleaning services for solar panels attract 18% GST as a service. This is a separate supply and does not qualify for the concessional rate.
Solar for Government and Institutional Projects
Solar installations for government buildings, schools, and hospitals may qualify for additional GST exemptions or concessional treatment under specific government schemes. Consult with the project authority for scheme-specific GST treatment.
Impact on PM Surya Ghar Subsidy Calculation
The PM Surya Ghar subsidy is calculated based on system capacity (Rs/kW), not on the invoiced amount. The subsidy amount is fixed regardless of the GST rate you pay:
| System Size | Subsidy Amount | Basis |
|---|---|---|
| Up to 2 kW | Rs 30,000/kW | Fixed per kW |
| 2-3 kW | Rs 18,000/kW (for 3rd kW) | Fixed per kW |
| Above 3 kW | No additional subsidy | Capped at 3 kW |
So for a 3 kW system, the subsidy is Rs 78,000 regardless of whether you paid 5% or 18% GST. This makes the 5% composite supply rate even more important for residential consumers — you save on GST and the subsidy is not reduced.
GST on Net Metering and Electricity Sale
Net Metering Credits
The electricity credits you receive through net metering (units exported to the grid) are not subject to GST. This is a consumption offset, not a sale.
Gross Metering / Sale of Electricity
If you sell electricity to TANGEDCO through gross metering, the sale of electricity is GST-exempt under current regulations. Electricity is not subject to GST — it remains under the state electricity duty regime.
Third-Party Sale
Third-party sale of solar electricity through a PPA may have GST implications depending on the contract structure. Consult a GST practitioner for specific advice on PPA-based solar sales.
Practical Checklist for Solar Buyers
- Always buy a turnkey system from a single vendor to ensure the 5% composite supply rate applies
- Check the invoice: The invoice should clearly state "Solar Power Generating System" with 5% GST. If individual line items show different GST rates, question the vendor
- For businesses: Ensure your GST registration is active and claim ITC on the solar GST paid
- For residential consumers: The 5% GST is a real cost — factor it into your budget alongside the PM Surya Ghar subsidy
- Battery storage: Include it in the initial system purchase to get 5% GST; adding later may attract 18%
- Keep invoices: Maintain all GST invoices for warranty claims, insurance, and (for businesses) ITC filing
Next Steps
Understanding the GST structure helps you budget accurately for your solar investment. The 5% concessional rate, combined with the PM Surya Ghar subsidy and (for businesses) ITC recovery, makes solar more affordable than the headline price suggests.
Calculate your total solar cost including GST and applicable subsidies, or contact Tristar for a detailed quotation with transparent GST breakdowns. All Tristar installations are invoiced as composite supply of solar power generating systems at the concessional 5% GST rate.
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