Accelerated Depreciation on Solar in India

Falling panel prices are not the only reason a business buys solar. A tax benefit that many C&I buyers still do not fully understand matters too. The accelerated depreciation (AD) benefit lets a business that installs and owns a solar power plant write off 40% of the plant's cost in the very first year of use. Since 1 April 2026 the rule sits in Section 33 of the Income-tax Act, 2025 (formerly Section 32 of the Income-tax Act, 1961), with the rate in Appendix I of the Income-tax Rules, 2026.

That single provision can reduce the net effective cost of a ₹1 crore solar installation by roughly ₹10 to ₹12.5 lakh in Year 1, depending on the business's tax rate. 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 listed as a renewable energy device and has a higher prescribed rate.

For the tax year starting 1 April 2026, Appendix I of the Income-tax Rules, 2026 lists solar power generating systems (and solar PV modules and panels for water pumping and other applications) at 40% per annum on the Written Down Value (page uploaded 5 May 2026, checked 31 October 2026). 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. It is directionally similar in mechanism to the MACRS-style accelerated depreciation used in the US, though the applicable rates and asset classifications differ significantly between the two tax regimes.

The legal basis is Section 33 of the Income-tax Act, 2025 (deduction for depreciation), read with Appendix I of the Income-tax Rules, 2026, specifically the entry for "Renewable energy devices". Section 33(3)(a) says the deduction is a prescribed percentage of the written down value. For tax years before 1 April 2026 the same benefit was claimed under Section 32 of the 1961 Act. See the official pages for Section 33 and Appendix I.

The rate table is maintained by the Income Tax Department on incometax.gov.in. For background on the ministry that promotes rooftop solar, see MNRE's mandate. Rates and rules can change with each Finance Act, so ask your CA to confirm the rate for the year you commission.

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. It is worth keeping the proprietorship's Udyam registration status current too, since MSME loan eligibility for solar capex is often tied to it.

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 and set off against future profits, so it is not lost, merely deferred. Ask your CA how the carry-forward works under the 2025 Act for your entity.

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), as listed in Appendix I of the Income-tax Rules, 2026
• Illustrative tax rate for a company outside the lower-rate regime: 30% + 4% health and education cess = effective 31.2% (your own rate depends on turnover, surcharge and regime; confirm with your CA)
• Illustrative rate for a company under the lower-rate regime (Section 115BAA of the 1961 Act): effective 25.17% (22% + surcharge + cess)
• Plant put to use early enough in Year 1 for 180 days or more of use (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. This is an illustration at an assumed 31.2% rate, not a forecast.

Check pib.gov.in for Finance Act and CBDT announcements on tax incentives. For Udyam-registered businesses, scheme information for solar capex finance is on the Ministry of MSME 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 main tax-side incentives are AD and GST ITC. 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 an illustrative ₹80 lakh project, a company at an assumed 31.2% effective tax rate, and assumed electricity savings of ₹6 to ₹8 lakh a year:

"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 net cost after tax savings is closer to ₹57 lakh. If the plant also saves you ₹6 to ₹8 lakh a year on electricity, tax savings and bill savings together recover about ₹53 to ₹63 lakh in five years, so payback is in the region of five years. Your CA should confirm the tax numbers, and we will put your own tariff into the bill-savings figure."

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 reduce the net cost in the early years. Run the numbers for your own loan terms, tax rate and tariff before promising anything

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 Quickest Solar CRM Can Do for Your AD Pitch

• Build proposal PDFs from templates with your logo, items, product photos, and terms and conditions, and share them on WhatsApp
• Paste your own AD summary into the proposal terms so the CFO sees the numbers next to the price
• Log an activity on a lead when you have shown the AD benefit, and set a follow-up reminder for the CFO meeting
• Use lead stages and labels to mark which C&I leads are tax-paying and own the plant

Frequently Asked Questions