GST on Solar Systems in India

If you quote solar projects without getting the GST treatment right, you either lose margin or create a compliance headache for your customer. The Indian GST framework treats solar system components, standalone supply, and turnkey EPC contracts differently, and the wrong classification can mean a 13-percentage-point swing in tax liability.

Getting this right matters for two reasons. First, it directly affects the price you quote to customers, quote at the wrong rate and you either eat the difference or face a revision that kills trust. Second, if you're a registered EPC, misclassification triggers scrutiny during CBIC audits. The Solar GST Decision Tree in this guide gives you a step-by-step framework to classify every project correctly before you issue a single invoice.

What is composite supply under GST, and why it changes everything for solar

Composite supply is the legal concept that makes solar EPC taxation manageable. Under Section 8 of the Central Goods and Services Tax Act, 2017, a composite supply is a transaction consisting of two or more taxable supplies that are naturally bundled and supplied together in the ordinary course of business, where one supply is the principal supply.

For a residential rooftop solar system sold by an EPC, the supply of solar panels, inverter, mounting structure, cables, and the installation service, the whole transaction is naturally bundled. The customer doesn't want panels delivered to their gate; they want a working system on their roof. CBIC has consistently treated such EPC contracts as composite supplies in its advance rulings and circulars.

The principal supply is the solar power generating system itself (the goods), not the installation service. That means the tax rate on the whole transaction is determined by the rate applicable to the principal supply, the solar plant, not the installation service.

This distinction is worth memorising. Many EPC owners accidentally treat their contracts as mixed supply or split invoices incorrectly, paying 18% on installation when the whole thing should be 5%.

The Solar GST Decision Tree, classify any project in under 2 minutes

This is the proprietary framework we call the Solar GST Decision Tree. Follow each node in sequence. By the end you'll have the correct GST rate and the correct HSN code for your invoice.

1. 1

   Supply type, goods only, services only, or bundled?

   If you are selling solar modules, inverters, or mounting hardware alone (no installation) → go to Node 2. If you are providing only labour/installation on equipment supplied by the customer → go to Node 3. If you are providing a full turnkey EPC contract (goods + installation + commissioning) → go to Node 4.

2. 2

   Standalone goods supply, apply HSN-specific rate

   Solar PV modules/cells: HSN 8541 42 00 → 12% GST (reduced from 5% per GST Council notification after October 2021 correction). Inverters: HSN 8504 → 12%. Mounting structures (MS/GI): HSN 7308 or 7610 → 18%. AC/DC cables: HSN 8544 → 18%. Solar charge controllers: HSN 8504 → 12%.

3. 3

   Pure installation service, 18% under SAC 9954

   If you only install equipment the customer already owns (labour-only contract), the service falls under SAC 9954 (Construction and Installation Services) at 18%. No composite supply relief applies because there is no goods supply to act as the principal supply.

4. 4

   Composite EPC, is the principal supply the solar plant?

   If the value of goods (panels + inverter + BOS) exceeds the value of services, the principal supply is the solar plant. Use HSN 9801 (composite works contract for power projects) at 12% for commercial, or fall under the solar system HSN/rate at 5% for residential if the system qualifies under MNRE's definition.

5. 5

   Residential vs commercial, apply the correct final rate

   Residential composite supply (solar PV system for a home): 5% GST on the entire contract value per GST Council notification and Entry 234A of Schedule I of the IGST Rate Notification. Commercial composite supply: 12% GST. Government/DISCOM tender (works contract): 12% GST. Always confirm the end-use on your contract.

GST rates by component, a complete reference table

When your invoice must split components (e.g., you supply and separately bill goods and services), use this table to assign the correct rate to each line item.

The 5% residential rate, what qualifies and what doesn't

The 5% GST rate on solar PV systems is one of the most debated areas in solar taxation, and for good reason. The rate was introduced via a series of GST Council notifications and is available only when specific conditions are met.

According to CBIC notifications and the Schedule I of the IGST Rate Notification, a "Solar Power Generating System" supplied and installed for residential use qualifies at 5%. The key requirements are:

The system must be a complete, functional solar power generating system, not individual components. The supply must be to a residential end-user, not a commercial entity. The contract must be a composite supply (goods + installation bundled together). The EPC must be the one supplying both goods and services under a single contract.

Where EPCs go wrong: selling panels to a customer who then hires a separate electrician means the panel sale is taxed at 12% as standalone goods supply. The 5% composite rate only applies when you provide the full system under one contract.

The GST Council has also clarified in circular No. 80/54/2018-GST that solar panels, inverters, and other parts of the solar power generating system, when supplied as part of a composite EPC contract, take the rate of the principal supply. Given India's Ministry of New and Renewable Energy (MNRE) policy push under PM Surya Ghar and the broader national target of 500 GW renewable capacity by 2030, this rate structure is designed to keep residential solar affordable.

GST on commercial solar, the 12% rule and works contracts

Commercial rooftop solar projects, factories, warehouses, offices, are treated differently. The composite supply benefit still applies (you're not paying 18% on installation), but the rate is 12% instead of 5%.

For large commercial projects executed as government tenders or through public sector undertakings (PSUs) like Solar Energy Corporation of India (SECI), the works contract rate under Section 2(119) of the CGST Act applies. These are taxed at 12% under SAC 9954, not 5%, and the EPC must ensure their invoicing reflects works contract classification, not supply of goods.

One more nuance: if you're a sub-contractor working for a main EPC who has the contract with the government or a PSU, your sub-contract attracts 12% GST even if the work is residential in nature. The rate follows the nature of the prime contract, not your individual scope. This is confirmed in CBIC Circular No. 177/09/2022.

ITC (Input Tax Credit) eligibility for solar EPCs

Input Tax Credit (ITC) rules for solar businesses are both an opportunity and a trap. Getting them right means you recover GST paid on your purchases; getting them wrong means a demand notice during assessment.

The immovable property restriction under Section 17(5)(d) is the most debated. Some tax authorities have argued that rooftop solar, once installed, becomes part of the building structure (immovable property), and therefore ITC is blocked. However, CBIC Advance Ruling decisions in states like Gujarat and Maharashtra have largely held that solar systems are plant and machinery, not construction, and plant and machinery ITC is specifically protected by the proviso to Section 17(5)(d).

Get a written opinion from your GST consultant before taking a large ITC credit on a commercial project. The law is clear in principle but enforcement varies by jurisdiction.

Invoice format, what every solar GST invoice must include

A GST-compliant invoice for a solar system supply is not the same as a regular goods invoice. According to Rule 46 of the CGST Rules, 2017, your invoice must include:

Your 15-digit GSTIN. The customer's GSTIN (if they're a registered business). The full HSN/SAC code for each line item, at least 6 digits for EPCs with turnover above ₹5 crore, and 4 digits for those below. The description must be specific: not "solar material" but "Solar PV Module (Polycrystalline), 540 Wp, Qty 8 Nos". Place of supply, critical for determining CGST/SGST vs IGST. The total value, tax rate, and tax amount split by CGST/SGST/IGST. Declaration if you're charging 5% and not claiming ITC (which is required when the composite residential 5% rate applies under the GST Council notification).

GST treatment for PM Surya Ghar projects, subsidy and GST interaction

PM Surya Ghar Muft Bijli Yojana, launched by the Government of India in 2024, provides a direct benefit transfer subsidy of up to ₹78,000 for residential rooftop solar. The subsidy is received by the consumer, not the EPC, but it affects how you invoice.

The EPC invoices the customer for the full system price, and the customer applies the subsidy separately through their DISCOM and the national portal. The GST is charged on the full invoice value, not the post-subsidy amount. The subsidy is a government transfer to the consumer and does not reduce the taxable value for GST purposes.

This is different from how some EPCs handle it on paper, some mistakenly invoice only the consumer's out-of-pocket portion and show the subsidy as a "discount," which is incorrect. The full contract value is the taxable value; the subsidy is a separate transaction between the consumer and the government.

For a detailed breakdown of subsidy amounts by system size, see our guide on PM Surya Ghar subsidy slabs. For the bank loan process under the scheme, see PM Surya Ghar bank loan process.

State-level GST variations and advance rulings to know

GST is a central and state concurrent levy, but the rates are set at the national level through the GST Council. What varies by state is the enforcement, advance ruling outcomes, and how state GST officers interpret circular provisions.

For EPC owners in Surat using GERC (Gujarat Electricity Regulatory Commission)-regulated DISCOMs like DGVCL, the Gujarat AAR guidance is directly applicable. Rohit's team at a 12-person Surat EPC, for instance, can safely charge 5% on residential composite contracts and claim ITC on all modules and inverters purchased.

If you're dealing with net metering applications and the DISCOM billing side, see our complete guide on solar installation cost breakdown which covers how GST affects the total project cost for customers. For the tax accounting side, Excel for solar tax management has templates for reconciling GST across your projects.

Common mistakes EPCs make with solar GST, and how to avoid them

Most GST errors in solar businesses fall into five patterns. Recognising them before a notice arrives is the best protection.

Mistake 1: Splitting invoices to avoid composite supply. Some EPCs issue a goods invoice at 12% and a services invoice at 18%, thinking this is simpler. It's not, and it costs customers more. Worse, if the total contract is residential EPC, this classification is wrong and exposes you to recharacterisation during assessment.

Mistake 2: Using 5% for commercial projects. A 100 kW factory rooftop is not residential. Charge 12% on commercial composite EPC contracts. See our 100 kW solar price guide for how this affects total project costs.

Mistake 3: Wrong HSN codes on the invoice. Inverters are 8504, not 8471 (computers). Modules are 8541 42 00, not 8501 (electric motors). The GSTN's invoice validation catches mismatches in e-invoicing above ₹5 crore turnover, but smaller EPCs still get audited.

Mistake 4: Not separating AMC on the invoice. Annual maintenance contracts (AMCs) are standalone services at 18% GST. If you bundle AMC in the initial EPC invoice, the entire value becomes a mixed supply taxed at 18%, the highest rate in the bundle. Always issue AMCs as a separate agreement and separate invoice, even if signed on the same day.

Mistake 5: Ignoring reverse charge on certain procurements. If you hire unregistered labour contractors for installation, reverse charge mechanism (RCM) may apply under Section 9(4) and Notification No. 13/2017-CT(R). You pay GST as the recipient of the supply. Many EPCs miss this and face demand notices.

How QuickEstimate helps your EPC get GST right on every proposal

Getting GST right starts before the invoice, it starts at the quote stage. When Rohit's sales team sends a proposal through QuickEstimate's Proposal Generator, the GST line items, composite supply classification, and HSN codes are embedded in the template. No field rep is manually deciding whether to charge 5% or 12%, the system enforces the right rate based on project type.

The compliance accuracy extends to the Quotation System, where Priya's ops team at a 40-person Pune EPC can set GST rules by project category (residential vs commercial) once, and every quote generated by every rep follows those rules automatically.

• Proposal Generator, GST-correct, branded PDF proposals generated in 60 seconds with the right rate per project type.
• Quotation System, Set GST rules centrally; every rep's quote follows the correct composite supply classification automatically.
• Sales Reports, Track GST-inclusive vs exclusive revenue across your pipeline to reconcile with GSTR-1 returns.

For more on how QuickEstimate fits into your solar business finances, see how to show ROI in a solar proposal and solar proposal payback period.

What to do this week, for your EPC

1. 1

   Audit your last 10 invoices against the Solar GST Decision Tree

   Pull your last 10 sales invoices and run each through the 5 nodes. Flag any where the rate or HSN code doesn't match. Share the findings with your CA before the next GSTR-1 filing date.

2. 2

   Update your proposal template to show GST correctly

   If your current proposal template shows separate GST rates for goods and services on a residential EPC project, fix it to show a single 5% composite rate. Customers trust EPCs who show the math correctly, and it closes faster when the customer sees lower total cost.

3. 3

   Separate all AMC agreements from EPC contracts going forward

   If you currently bundle annual maintenance into the solar EPC contract, split it out as a separate document this week. One change prevents mixed supply tax on your entire contract value, potentially saving 13% on the AMC portion.

Frequently asked questions

What is the GST rate on a residential solar system in India?

The GST rate on a residential solar power generating system supplied as a composite EPC contract (goods + installation together) is 5%. This is per Entry 234A of Schedule I of the Integrated Goods and Services Tax (IGST) Rate Notification and GST Council decisions. The 5% rate applies when the EPC provides the full system under one contract to a residential end-user. Standalone supply of solar modules at HSN 8541 attracts 12% GST, and pure labour installation services attract 18% under SAC 9954.

What is the HSN code for solar panels in India?

Solar photovoltaic (PV) cells and modules are classified under HSN code 8541 42 00 as per the 2022 HSN revision. Prior to the revision, they were under HSN 8541 40 11. The current rate under this HSN for standalone supply is 12% GST. When solar panels are supplied as part of a composite EPC system for residential use, the transaction is classified under the solar system entry at 5%, not the 8541 module rate.

Can EPCs claim ITC on solar modules and inverters purchased for installation?

Yes. An EPC registered under GST can claim Input Tax Credit (ITC) on solar modules, inverters, mounting structures, cables, and other components purchased for use in supplying taxable EPC contracts. The key condition is that the output supply (EPC contract) must be taxable. Since the 5% residential and 12% commercial EPC rates are taxable supplies, ITC is available. ITC is blocked only on goods/services used for exempt supplies or for construction of immovable property, but advance rulings in Gujarat and Maharashtra have held that solar systems are plant and machinery, not immovable property.

Is GST applicable on the PM Surya Ghar subsidy amount?

No. The PM Surya Ghar subsidy is a direct benefit transfer (DBT) from the central government to the consumer's bank account. It is not a payment for any supply of goods or services and does not attract GST. However, the EPC's invoice to the consumer must be for the full contract value, not the post-subsidy amount, the consumer applies for the subsidy separately through the PM Surya Ghar National Portal and their DISCOM.

What is the GST rate for a commercial rooftop solar system?

A commercial rooftop solar system supplied as a composite EPC contract attracts 12% GST. This is higher than the 5% residential rate because the GST Council's reduced rate notifications specifically cover residential solar power generating systems. For factories, warehouses, offices, and other commercial premises, the standard works contract / composite supply rate of 12% applies under HSN 9801 or as confirmed in CBIC circulars.

Do sub-contractors on solar projects pay GST at 5% or 12%?

Sub-contractors providing installation services to a prime EPC on a government or commercial solar project pay GST at 12% (SAC 9954, works contract). The rate follows the nature of the prime contract, not just the nature of the work. A sub-contractor cannot apply the 5% residential rate if the prime contract is a commercial or government project. This was clarified in Rajasthan AAR rulings and CBIC Circular No. 177/09/2022.

What happens if an EPC charges the wrong GST rate?

If an EPC charges 12% on a residential composite EPC that should be 5%, the extra tax paid can be claimed as ITC by the recipient (if they are a registered business) or refunded via the GSTR-1 amendment process. If the EPC undercharges (charges 5% on a commercial project that should be 12%), they are liable for the differential tax, interest, and potential penalties under Section 73/74 of the CGST Act. The burden is on the supplier to charge correctly.

Is there GST on solar batteries and storage systems?

Yes. Solar batteries, lithium-ion (HSN 8507 60) and lead-acid (HSN 8507 20), attract 18% GST as standalone goods. If a battery storage system is supplied as part of a composite solar EPC contract, the classification depends on whether the battery is the principal supply or an ancillary component. In most residential solar projects, the solar panels and inverter are the principal supply, and the battery storage is ancillary, so the composite rate (5% for residential) applies. For standalone battery supply, 18% applies.