Accelerated Depreciation on Solar in India

India's commercial and industrial solar market crossed 12 GW of cumulative installed capacity in FY2025, and a significant portion of that growth was unlocked not by falling panel prices alone, but by a tax benefit most C&I buyers still do not fully understand. The accelerated depreciation (AD) benefit under Section 32 of the Income Tax Act, 1961, allows a business that installs and owns a solar power plant to write off 40% of the plant's cost in the very first year of use.

That single provision can reduce the net effective cost of a ₹1 crore solar installation by ₹10–14 lakh in Year 1, depending on the business's tax bracket. Across the life of the asset, the total tax shield is substantial. Yet field experience shows that the majority of EPC salespeople either do not know how to compute it precisely, or explain it so vaguely that the C&I buyer's CFO dismisses it.

This guide fixes that. By the end, you will know the exact mechanics, the eligibility conditions, how to build a year-wise tax saving projection for any project size, how AD compares to the PM Surya Ghar subsidy for commercial buyers, and how to use this as a structured closing argument with your next C&I prospect.

What Is Accelerated Depreciation on Solar?

Under the normal depreciation rules of the Income Tax Act, different asset classes depreciate at different rates. Plant and machinery typically depreciates at 15% per year under the Written Down Value (WDV) method. A solar power plant, however, is classified as a renewable energy device and is eligible for a special higher depreciation rate.

As of FY2026, the applicable rate for solar photovoltaic systems is 40% per annum on the Written Down Value. This is the "accelerated" component, it is substantially higher than the standard plant-and-machinery rate of 15%, and it means the business recovers a much larger portion of its capital expenditure as a tax deduction in early years.

The legal basis is the Income Tax Act, 1961, Section 32, read with Appendix I of the Income Tax Rules, specifically the entry for "Renewable energy devices" under Block 8 of plant and machinery.

The Central Board of Direct Taxes (CBDT) and the Ministry of New and Renewable Energy (MNRE) have both consistently supported this provision as a demand-side incentive for corporate solar adoption. The relevant notification and asset block classifications are maintained by incometax.gov.in and the depreciation schedule is periodically updated via CBDT circulars.

Who Is Eligible to Claim Accelerated Depreciation?

This is the most commonly misunderstood aspect of the AD benefit. Eligibility is not universal, it depends on the ownership and usage structure of the solar plant.

Eligible Entities

Companies (Private and Public Limited): All companies registered under the Companies Act that own and use a solar plant for their business operations can claim AD. This includes manufacturing companies, IT companies, commercial establishments, hospitals, educational institutions, and hotels. The plant must be "put to use", meaning it must be commissioned and generating electricity, during the financial year in which the claim is made.

Proprietorship Firms: A sole proprietor who owns a solar plant as part of their business assets can claim AD under their personal Income Tax Return (ITR 3 or ITR 4, depending on the business type). The solar plant must be listed as a business asset.

Partnership Firms and LLPs: Partnership firms and Limited Liability Partnerships can claim AD on a solar plant owned by the firm (not by individual partners). The depreciation flows through to the firm's profit-and-loss account, reducing taxable income at the firm level.

HUFs with Business Income: Hindu Undivided Families that have documented business income can claim depreciation on assets owned and used for the business.

Who Cannot Claim AD

Individual Residential Consumers: A homeowner who installs rooftop solar to reduce their home electricity bill cannot claim accelerated depreciation. This is a personal asset, not a business asset. Residential customers should instead focus on the PM Surya Ghar subsidy, covered in the comparison section below.

Net-Metering Arrangements Where Discom Owns the Plant: In some third-party ownership (RESCO/OPEX) models, the solar plant is owned by the developer, not the business. In this case, the developer claims the depreciation, not the end user. Only the business that legally owns the plant gets the AD benefit.

Businesses with No Taxable Profit: AD reduces taxable income. A business running at a loss or with zero tax liability gets no immediate cash benefit from AD. However, unabsorbed depreciation can be carried forward for 8 assessment years and set off against future profits, so it is not lost, merely deferred.

The Written Down Value Method, How AD Is Calculated

The WDV method means depreciation is applied to the book value of the asset at the beginning of each year, not to the original cost. The asset value declines each year, and depreciation is calculated on that declining balance.

Year 1 Calculation (Full Year):

• Depreciation = 40% × Original Cost
• Closing WDV = Original Cost − Depreciation

Year 2 Calculation:

• Depreciation = 40% × Opening WDV (which is the previous year's Closing WDV)
• Closing WDV = Opening WDV − Depreciation

This continues every year. Note that under the WDV method, the asset's book value never reaches zero in theory, it approaches zero asymptotically.

Year-Wise Tax Saving Tables

Below are three detailed tables for ₹50 lakh, ₹1 crore, and ₹5 crore solar projects. Assumptions:

• Applicable AD rate: 40% per annum (WDV method)
• Corporate tax rate: 30% + 4% health and education cess = effective 31.2% (for companies not opting for the new Section 115BAA regime)
• For companies under Section 115BAA (new regime): effective rate 25.17% (22% + surcharge + cess)
• Plant commissioned before September 30 of Year 1 (full-year depreciation applies)
• All figures are approximate and for illustration; consult a CA for your specific situation

Key insight from Table 3: On a ₹5 crore C&I solar project, a company in the 30% bracket saves over ₹1.44 crore in income tax over five years, purely from the depreciation benefit. That is nearly 29% of the project cost recovered through tax savings alone, before counting electricity cost savings.

India's installed commercial and industrial solar capacity has grown rapidly, as tracked by the MNRE's quarterly reports. The National Portal for Infrastructure data at pib.gov.in regularly publishes updates on renewable energy tax incentives. For Udyam-registered businesses, MSME loans to fund solar capex are available through the MSME Ministry portal.

How to Claim Accelerated Depreciation, Step by Step

AD vs PM Surya Ghar Subsidy, C&I Comparison

Commercial and industrial buyers frequently ask whether they should pursue the PM Surya Ghar Muft Bijli Yojana or whether accelerated depreciation is the better financial structure. The answer depends on the entity type and system size.

For our detailed breakdown of the PM Surya Ghar scheme structure and how it compares to CFA arrangements, see the post on PM Surya Ghar vs CFA scheme.

The practical answer: Commercial and industrial businesses do not qualify for PM Surya Ghar subsidies, which are designed for residential consumers. Their primary demand-side incentives are AD, GST ITC, and (for certain sectors) production-linked incentives. Residential consumers, conversely, benefit more from the direct subsidy than from any tax deduction (since most do not file as businesses).

The GST Dimension, What Counts in the Asset Base

When calculating the asset cost for AD purposes, the relevant figure is the total capital expenditure actually incurred, which in most C&I solar installations means the cost after GST Input Tax Credit recovery.

Here is why this matters: If your business is GST-registered and claims ITC on the solar installation (panels, inverter, balance-of-system), the ITC-recovered amount reduces your net cost. The Income Tax depreciation, strictly speaking, should be applied on the net cost after ITC, since the ITC amount is not a "cost" to the business, it is a credit received.

However, if your business is not eligible for ITC (e.g., because you are in an exempt sector), then the full gross cost including GST is your depreciable asset value, which actually increases the AD benefit.

Understanding the correct HSN codes and GST rates matters here. See our guides on GST on solar installation service, GST rate on solar inverters, and HSN codes for solar panels to get the invoice structure right from the start.

Stats: The Financial Impact of AD at Scale

AD as a Sales Argument, How EPCs Should Present It

The accelerated depreciation benefit is one of the most powerful closing tools an EPC salesperson has with C&I prospects, but it is almost universally under-utilised, either because the EPC rep does not understand it well enough to explain it confidently, or because it is presented in abstract percentage terms rather than in rupees.

Here is how to present it correctly.

The Wrong Way

"You also get a 40% accelerated depreciation benefit under the Income Tax Act, so your effective cost is lower."

This tells the prospect nothing concrete. The CFO's response will be "Our CA will look into it", and then it disappears from the conversation.

The Right Way

For a ₹80 lakh project with a company in the 30% tax bracket:

"Your gross outlay is ₹80 lakh. In Year 1, you claim 40% depreciation on the full cost, that is ₹32 lakh as a deduction from your taxable profit. At your tax rate, that saves you approximately ₹9.98 lakh in income tax in the first year alone. Over five years, the total tax saving across all depreciation years is around ₹23 lakh. So your real net cost, after tax savings, is closer to ₹57 lakh. And from Year 1, you are also saving approximately ₹6–8 lakh per year on electricity. The payback period on the effective net cost is under 5 years."

This is a bankable, CFO-ready argument. For guidance on building this kind of financial narrative into a proposal, see our post on how to present ROI in a solar proposal and solar payback period calculations.

Financing and AD Together

When the C&I customer is financing the solar project through a loan (see our post on solar loan interest rates in India), the combination becomes even more powerful:

• Interest on the solar loan is a tax-deductible business expense
• Depreciation on the solar asset is separately deductible
• Together, the tax benefits can make the first 2–3 years nearly cost-neutral on a post-tax, post-electricity-saving basis

Pros and Cons of the AD Route vs Standard Depreciation

AD in the Context of the Broader Solar Sales Funnel

Accelerated depreciation is a mid-to-late funnel argument. It belongs in the proposal stage and the closing meeting, not in the first discovery call. In the early stages of your solar sales funnel, you are qualifying whether the prospect is a C&I business, whether they own (or plan to own) the plant, and whether they are currently paying meaningful income tax.

Once those three boxes are checked, AD becomes one of your most powerful tools. A structured sales process helps your team ask these qualifying questions early, before spending time building a custom proposal. See our guide on how to start building your solar EPC business capital strategy for the broader financial context.

What QuickEstimate Can Do for Your AD Pitch

• Generate professional proposal PDFs with a custom Tax Benefit Summary section showing Year 1 and 5-year AD savings
• Pre-fill customer-specific project cost data so the depreciation table auto-populates in seconds
• Track which C&I leads have been shown the AD benefit and which have not, never leave a financial argument on the table
• Log CA referral partnerships against relevant leads for handoff at the right moment in the sales cycle
• Store MNRE certificate uploads and commissioning documents against the project record for audit readiness

Frequently Asked Questions