Exploring tax incentives to invest in India's renewable energy sector
What's the story
India is on the cusp of a green energy revolution, and the government has rolled out a green carpet of tax breaks to lure investments into the sector.
These incentives aim to slash the cost of establishing renewable energy projects and make green energy a more appealing investment option.
Grasping these tax perks can assist investors and companies in making strategic decisions about investing in India's renewable energy sector.
Depreciation
Accelerated depreciation benefits
A major incentive provided by the Indian government is the option for accelerated depreciation.
Investors in renewable energy projects can claim a higher depreciation rate of up to 40% on their investments.
This enables businesses to deduct a larger portion of their investment in the initial years, significantly reducing their taxable income.
This benefit is especially advantageous for solar, wind, and biomass power projects.
Expenditure deduction
Deduction on expenditure for specified projects
Under Section 80IA of the Income Tax Act, companies involved in developing, maintaining, and operating renewable energy projects can claim a 100% deduction on profits for 10 consecutive assessment years out of 15 years from the year they commence operations.
These projects include solar power plants, wind mills, and hydroelectric plants, among others.
This essentially boosts profitability and attracts more companies to invest in green energy.
Duty exemptions
Customs and excise duty exemptions
In a bid to further decrease the financial strain on renewable energy projects, the government has eliminated customs and excise duties on specific components and equipment necessary for establishing these projects.
This encompasses solar panels, inverters, wind turbines, and others, which are essential for renewable energy production.
By reducing import expenses, this incentive fosters financial feasibility for companies to embrace green technology.
Tax holiday
Income tax holiday periods
The Government of India provides a tax holiday to companies engaged in renewable energy generation or distribution.
During this period, companies are exempted from paying income tax on profits derived from such activities.
They can claim this exemption for any 10 consecutive years within a 15-year period starting from the year of operation commencement.
This incentive greatly enhances the financial viability of renewable energy projects.
State benefits
Additional incentives by state governments
Besides the central government incentives, many state governments in India provide extra benefits to encourage green energy within their regions.
These can range from land cost subsidies, lower electricity duty rates for power produced from renewables, or even direct financial support during project setup.
Every state has its own unique policies to draw investment into sustainable tech.