India’s solar energy sector has been gaining importance and with good reason. Solar panel installation not only helps reduce electricity bills but also offers user-beneficial tax benefits.
The most noteworthy incentive businesses get out of investing in solar is AD (Accelerated Depreciation). This kind of tax-saving mechanism lets solar system owners recover their cost of investment at the earliest, and encourages clean energy adoption.
Keep reading as we break down everything you need to know about accelerated depreciation rates for solar panels in India, the way it works, who qualifies, and how it benefits commercial users.
What is Accelerated Depreciation?
Accelerated Depreciation is a tax accounting method that lets businesses write off the asset cost they have invested in more quickly, especially in the earlier years of its life. In the case of solar energy system investments, this means that your company can significantly reduce the taxable income once the solar panel installation has been done.
What it Matters:
- It encourages early investment in renewable technologies.
- It leads to faster ROI (Return on Investment) and lets businesses reduce their tax liability as early as possible.
- It’s recognised and comes under India’s Income Tax Act and is widely followed by industries said to be seeking cleaner energy sources.
Benefits of Accelerated Depreciation for Solar Projects
Accelerated depreciation has multiple benefits for both industrial and commercial users. Here’s how:
- Tax Saving Possibility
If you are a business owner, then you can claim up to 40% depreciation on solar systems in the first year. This will certainly help in reducing your taxable income and lower your tax outgo as well.
Example: If you have made a ₹10 lakh investment in solar energy-related products, then you are eligible to deduct ₹4 lakh in the first year.
- Improved Cash Flow
With reduced tax liability possibility, your business will have more liquidity. Such early savings can be wisely reinvested in upgrading your business operations or for expansion purposes.
- Encourages Rooftop Solar Adoption
Having lower upfront costs to clear means quick ROI. This makes your rooftop solar investment more appealing, especially if you have factories, commercial buildings, or warehouses.
- Positive Environmental Impact
Businesses adopting solar energy resources yield fewer carbon emissions. Accelerated depreciation supports India’s goal under the Paris Agreement.
India has avoided about 21.3 million tonnes of CO2 emissions, given its solar power adoption.
How Accelerated Depreciation Works: Step-by-Step
Here’s a simplified explanation explaining how Accelerated Depreciation gets applied to solar panel systems:
- Determine Asset Cost Basis
This involves the cost of solar panels, installation, and other associated components. 1kW solar system price range estimates about ₹ 75,000 to ₹ 85,000 in India. Based on the kW you need, the price range differs.
- Apply Depreciation Rate
Currently, the Indian Government allows 40% accelerated depreciation on solar energy equipment. This comes under the Income Tax Act, Section 32.
- Calculating Taxable Income
Higher depreciation does reduce your net profit. It further leads to lowering your taxable income, followed by tax liability.
Eligibility and Compliance for Claiming Accelerated Depreciation on Solar Assets
To benefit from Accelerated Depreciation, your business must meet certain criteria and follow compliance protocols:
Who Can Claim?
Commercial entities or registered businesses installing solar power systems.
Industrial users utilise solar energy for internal consumption.
Documentation Needed:
- Tax invoices and GST bills
- Certificate from the solar company
- Proof of commissioning date
Tax Filing Process:
- Annual income tax returns must include depreciation calculations
- File under the appropriate tax audit forms
How Accelerated Depreciation Helps Commercial Buyers
As a commercial buyer, you can benefit the most from Accelerated Depreciation. Here’s how:
- Immediate Tax Relief
Claiming 40% depreciation in one year reduces taxable profits, offering instant relief.
- Improved Cash Flow and Working Capital
Tax savings can be redirected into your business operations, new green initiatives, or R&D.
- Boosted ROI
- Accelerated Depreciation shortens your payback periods, often making your solar investment viable in 3 to 4 years.
- Typical payback with Accelerated Depreciation: 3.5 Years
- Without Accelerated Depreciation: 5 to 6 years
- ESG and Sustainability Reporting
Solar adoption supports CSR (Corporate Social Responsibility) goals and strengthens your sustainability credentials.
Recent Updates and Government Policies on Accelerated Depreciation for Solar
Current Depreciation Rate:
As of the financial year 2024-25, the solar power plants are eligible for 40% accelerated depreciation, according to India’s CBDT (Central Board of Direct Taxes).
Other Government Incentives:
- Registered developers get GST exemption for investing in solar panel modules.
- Residential rooftop solar users get ₹ 78,000 subsidy under PM Surya Ghar Yojana.
- State-level DISCOM schemes offer solar panel installation subsidies.
Case Studies: Businesses Benefiting From Accelerated Depreciation
Case Study: Triveni Packaging Systems
System Size: 250 kW rooftop solar
Cost: ₹1.2 crore
Accelerated Depreciation (First Year): ₹48 lakhs
Tax Saved: ₹14.4 lakhs
CO2 Savings: 330 tonnes per year
Case Study: Kerala-Based Textile Factory
System Size: 500 kW
Accelerated Depreciation Claimed: ₹80 lakhs
Outcome: Payback reduced from 6 years to 3.8 years
Environmental Impact: Annually, 650 tonnes of CO2 offset
FAQs
- What is the depreciation rate for solar panels in India?
40% per annum as per the current tax rules.
- How do you calculate accelerated depreciation for solar?
Multiply the total asset cost by a 40% depreciation rate in the first year. Then, adjust it with the remaining value for the subsequent years.
- Why do companies use accelerated depreciation?
Accelerated Depreciation helps reduce taxable income as soon as possible and frees up cash flow to improve ROI.
- What is the best example of accelerated depreciation?
Businesses said to be installing large rooftop solar systems are highly eligible for claiming 40% depreciation to recover the capital faster.
Conclusion
Accelerated depreciation is a powerful and the most useful tool for businesses considering solar panel installation. It can be used to handle your tax burdens, improve ROI, support India’s clean energy goals, and drive quicker adoptions.
Whether you are a commercial complex manager or a factory owner, leveraging the above-discussed benefits will make your switch to solar both economically and environmentally rewarding.
At Elsol, recognized as the best solar company in Kerala, our in-house experts help in planning your solar panel installations and provide insights to ensure you can maximise your tax and subsidy benefits under various schemes.
We are one call away from clearing all your queries related to solar panel-related accelerated depreciation.
