GST on Solar Projects: Goods vs Works Contract: Rules, Limits and Worked Examples
Solar projects have complex GST treatment depending on whether the contract is structured as supply of goods, works contract or composite supply. For specified renewable energy project supplies, a 70:30 deemed valuation mechanism applies â and the goods-side rate within that split was cut from 12% to 5% effective 22 September 2025, lowering the blended incidence.
Current GST Rate Structure for Solar
| Supply Type | GST Rate |
|---|---|
| Solar panels / modules / cells (goods supply only) | 5% |
| Solar-specific inverters classifiable as part of the renewable device | 5% |
| Generic/standalone inverters, batteries, mounting structures, cabling (sold separately) | 18% |
| Solar water heater (composite, principal supply test) | 5% |
| Ordinary works contract (not a covered renewable project supply) | 18% â no automatic concessional rate |
| Covered EPC/turnkey project for specified renewable energy project | 70:30 deemed split â blended â8.9% |
The 70:30 Split Rule for Covered EPC Contracts
For a composite EPC (turnkey) contract that qualifies as a specified renewable energy project supply, Notification 24/2018-Central Tax (Rate) dated 31 December 2018 inserted a deemed valuation explanation, later clarified for the pre-2019 period by Circular 163/19/2021-GST:
- 70% of contract value â deemed supply of goods (the renewable energy device/system), taxed at the concessional goods rate
- 30% of contract value â deemed supply of services (erection, installation, commissioning), taxed at the standard 18% rate
- The goods-side concessional rate was 5% until 30 September 2021, then 12% from 1 October 2021 (Notification 8/2021-CTR), and has been 5% again since 22 September 2025 following the GST Council's 56th meeting rate rationalisation
- Effective blended rate at the current 5% goods rate: (70% Ã 5%) + (30% Ã 18%) = approximately 8.9%
Worked Example: 1 MW Rooftop Solar for Factory
Case Study: SunPower EPC â 1 MW Industrial Rooftop Solar (Post-22 Sep 2025 Rates)
For contracts entered into before 22 September 2025 but invoiced afterward, check the transitional provisions to determine which rate applies to which portion of the supply.
ITC on Solar Plant for Businesses
A business purchasing a solar plant for use in manufacturing can claim ITC on GST paid, provided the plant is used for taxable supplies and treated as plant and machinery (not immovable property). Rooftop solar panels screwed onto the building are generally treated as movable plant and machinery â ITC available.