OPINION: Tax consolidation schemes is the need of the hour for India’s renewable energy sector

OPINION: Tax consolidation schemes is the need of the hour for India’s renewable energy sector
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By Jimit Devani, Naman Shah and Jash Davda

India has made revolutionary development in the renewable energy (RE) sector. In the last 7.5 years the RE installed capacity has increased by 286%, making India the fourth biggest in the world, for installed RE capacity. As of October 2021, India’s RE capacity has reached 149.57 gigawatts (GW), from 94.4 GW in 2020.

The Union Budget, 2021 outlined various reforms and initiatives towards boosting the non-conventional energy sector in India. The first one amongst it was the clarion call for ‘Atmanirbhar Bharat’ and ‘Vocal for Local’, by introducing production-linked incentive (PLI) scheme of ₹4,500 crore for solar cells and modules. An overwhelming response from the industry to the PLI scheme led to further enhancement of the scheme to ₹24,000 crore to boost exports.

Recently, on January 20, 2022, the Cabinet also approved capital infusion of ₹1,500 crore to the Indian Renewable Energy Development Agency (IREDA) as proposed in the Union Budget, 2021.

However, the journey has just begun and much is yet to be accomplished. The RE sector has a mammoth target of 227 GW capacity generation in 2022, of which about 114 GW is planned for solar, 67 GW for wind and the remaining for hydro and bio, amongst others.


Further, at the COP 26 climate summit in Glasgow, enhancing its commitment towards climate change India pledged five – ‘Panchamrits’ – to become a ‘net zero’ carbon emitter by 2070.

To achieve this ambitious target, various reforms are expected in the Union Budget, 2022 to push the industry. A few of them are listed below:

1. Expansion of PLI schemes
Presently, the PLI scheme only covers solar cells and modules. However, to boost domestic manufacturing it is also imperative to incentivise other limbs of the RE segment. This can be achieved by extending the benefits of the scheme with additional budgetary allocation to:

  1. Manufacturers of electrolysers to generate green hydrogen
  2. Battery manufacturers for electric vehicles
  3. Greening of Indian railways
  4. Wind turbines.
2. Tax incentives for green economy adoption
Promoting green technology is critical to India’s commitment towards its ‘net zero’ emissions target. Countries across the globe are taking steps for furtherance of the green economy by providing free land, concessional power cost, funding at low interest costs, government incentives, etc in addition to concessional tax rates.

To push the RE players and provide a level playing field globally, similar benefits may be provided in the upcoming Budget. With respect to tax related measures, it is expected that a concessional tax rate of 15% should also be extended to companies which invest in green technologies coupled with an additional deduction towards investment or purchase of green technology assets.

3. Promotion of social infrastructure projects like conversion of waste to energy
In order to promote social infrastructure projects like waste to energy as well as projects that lead to transformation of waste to energy, it is recommended to include them under priority sector lending. This has been successfully implemented by municipal corporations of Indore and Nagpur.

The government may, along with the state government/municipal corporation/gram panchayat develop a policy, setting a target to develop such social infrastructure projects in the respective localities. Companies participating in such projects should also be incentivised with subsidies on tariff rates, free land and other benefits.

4.Tax consolidation policy
Typically, RE projects are domiciled in separate special purpose vehicles (SPVs) due to various reasons such as regulatory compulsion, banker’s comfort, and the need to segregate cash flows. Having multiple SPVs for a single line of business results in inefficiencies and increased compliance burden.

Further, the losses of one SPV cannot be set-off against the profits of another SPV. All these factors make tax consolidation schemes a need of the hour and hence, consolidation of group tax may be considered for streamlining tax provisions and making more proceeds available in the hands of the investors.

5. Rationalising GST rates
Goods and Services Tax (GST) rates on specified RE devices and parts have been increased from 5% to 12%, due to which effective GST rate for EPC contracts has increased from 8.9% to 13.8%. It is thus recommended to restore the GST rate of 5% so as to bring down the cost to companies.

There are various other steps, which are required to be taken in order to bring in long-term policy stability and for promoting investments in the RE sector such as regularisation of payment from DISCOMs, land acquisition, and resumption of staggered projects. Thus, the RE sector expects Budget 2022 to step up towards achieving the ambitious dream of making India ‘net zero’ carbon emitter by 2070.

Jimit Devani is Partner, Naman Shah is Senior Manager and Jash Davda is Deputy Manager with Deloitte Haskins and Sells LLP.

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