Green Tax Incentives: From Solar Panels to Electric Cars

Introduction

Reports suggest we have around 11-12 years to avoid irreversible climate disruption. Other reports tell us that the global average temperature will rise above 1.5 degrees Celsius by 2032 and 2 degrees Celsius by 2050. This and more have led to increasing importance being placed on sustainable practices.

Sustainability is encouraged, required and in some cases expected from businesses of all sizes, especially larger corporations. With the environment-conscious younger generations gaining purchasing power the entities that implement green and sustainable protocols stand to capture the market while protecting the environment.

To encourage healthy practices, governments worldwide have provided various incentives that industries and individuals can leverage to their advantage. At the same time, due to the implementation of environmentally sustainable practices, there is a reduction in their Carbon Footprint. Let us explore the green tax incentives available in India.

Accelerated depreciation under the Income Tax Act

Depreciation of 40% and an Additional Depreciation of 20% under Section 32 of the Income Tax Act 1961 is available on Solar Plant Machinery that has been operational for more than 180 days in the financial year. Therefore there is up to 60% depreciation available for Solar Plant Machinery in the first year of purchase. This allows a large amount of deduction available, thereby reducing tax liability. It also encourages solar power as a more sustainable power source for entities.

Investments in equipment and systems for environmental protection and pollution control are eligible for accelerated depreciation which can be up to 40% in the first year of operation. This helps to encourage businesses to invest in technologies that reduce their environmental impact.

Income Tax Exemption under Section 80IA

Under section 80IA, a 100% exemption from income tax is available on profits derived from setting up and managing the eligible business of power generation from renewable sources. The exemption of 100% is available for 10 consecutive years out of the 15 years from the date of commencement of activities. This encourages long-term investments in renewable energy infrastructure like solar farms and wind parks. Moreover, solar and wind power plants enjoy the following benefits:

• Reduction or exemption from excise duty on certain components like 100% exemption on certain wind turbine parts is available.
• Concessional or exemption of custom duty.
• Concession on import duties for components.
• Safer prices due to safeguards being in place and being closely monitored by the government.

Section 80JJA of the Income Tax Act

This section allows businesses to claim deductions for profits and gains derived from the collection and processing of biodegradable waste for generating power or producing bio-fertilizers or other biological agents etc. The whole of the profits or gains from such business shall be allowed as a deduction for five consecutive years starting from the assessment year in which such a business has commenced. To claim this deduction proper documentation of eligible expenses incurred should be kept.

Subsidies on Solar Rooftop Installations

The Ministry of New and Renewable Energy(MNRE) offers subsidies for installing rooftop solar systems. The subsidy as per the old structure for systems ranging from 1kW to 3kW will be ₹ 18,000/kW for general states and ₹ 20,000/kW for special category states. Systems above 3kW and up to 10kW capacities shall receive ₹ 9,000/kW in general states and ₹ 10,000/kW in special category states.

Under the new program PM Surya Ghar: Mufti Bikli Yojana, announced by Prime Minister Narendra Modi recently, a subsidy of ₹ 30,000/kW will be provided for residential rooftop solar systems up to 2kW on or after February 13, 2024. An Additional ₹ 18,000/kW will be available for systems of over 2kW and up to 3kW capacity. For systems with over 3kW, the subsidy will be capped at ₹ 78,000/kW depending on the average monthly power consumption of the household.

This subsidy reduces the cost of solar installations for homeowners and also promotes the use of clean energy at the residential level.

Solar panels, inverters and other components enjoy the lower GST rate of 5% and reduced excise duty along with custom duty exceptions. There is also Net metering which allows residents to sell the excess power they generate back to the grid and earn credits for later.

Electric Vehicles

The government has introduced a tax break for those opting for electric vehicles to encourage sustainable living choices. Electric vehicles offer a clean and green committee and so a deduction of ₹ 1.5 lakh can be availed on the purchase of an EV for the interest amount of the vehicle loan taken under Section 80EEB of the Income Tax Act 1961.

Any vehicle loan taken for the purchase of an electric vehicle from a bank or a specified NBFC that has been sanctioned between the period 01/04/2019 and 31/03/2023 is eligible for a ₹ 1.5 lakh deduction on the interest component payment.

Electric Vehicles also enjoy

• Lower GST rate of 5% as compared to the 12% for traditional cars
• Exemption from paying a green tax which is levied on vehicles which have been registered for 15 years
• Certain states exempt electric vehicles from payment of road and vehicle tax

Section 80CCF Investment in Green Bonds

By investing in green bonds, a contribution is being made to innovative environmentally conscious projects that also reduce tax liability. The government of India has through Section 80CCF of the Income Tax Act allowed the taxpayer to deduct a portion of the investment of certain long-term green bonds from the taxable income. A deduction of ₹ 20,000 is available on investment in long-term green bonds that help the environment. These bonds help fund sustainable projects like clean water, renewable energy etc.

Green Building Initiatives

These initiatives ensure that the buildings we construct and live or work in can achieve a green and high level of energy efficiency. The Indian Green Building Council (IGBC) awards the Leadership in Energy & Environmental Design (LEED) India certification, which ranges from “Certified” to “Platinum” based on efficient features. Green buildings greatly help in reducing emissions due to the reduced water usage and higher conservation of energy. These green projects also enjoy:

• These certified projects can claim up to 100% depreciation on green features like solar panels, rainwater harvesting systems and waste management systems.
• Low-interest loans through the IREDA (Indian Renewable Energy Development Agency Limited) for certified green projects.
• Various states provide subsidies and exemptions as they see fit for energy-efficient buildings and renewable energy initiatives.
• Faster approval and inspections for green buildings.
• Reduced building fees for green-certified buildings.

The above initiatives have encouraged more and more entities to participate in sustainable and clean environment practices thereby succeeding in their intent. Individuals should look up to their government with great anticipation for more tax breaks in this area, eager to help the environment and save taxes. A win-win situation. They should also explore other ways they can help with saving the environment. No change is too small. It is after all the responsibility of humans on this planet to take care of it. Let us keep moving forward as sustainably conscious as we can be while holding others accountable for the same.