Energy SectorRenewables & Power

GST on Energy & Power — Electricity, Solar, Coal, Petroleum & EVs

Comprehensive guide to GST on the energy sector: electricity (exempt), solar equipment (12%), coal (5% + cess), petroleum products (excluded), LED/electrical equipment (12-18%), electric vehicles (5%), and the complex interplay between GST, state electricity duty, and central excise.

Exempt

Electricity

12%

Solar Panels

5% + Cess

Coal

Outside GST

Natural Gas

18%

LED Lights

18%

Batteries

12%

Wind Turbines

Excluded

Petroleum

Energy & Power — GST Framework

Electricity — Exempt (State Domain)

Electricity supply is NOT under GST. It remains under state electricity duty (ranges 0-20% across states). Rationale: states generate significant revenue from electricity duty and refused to cede control. Impact: power companies cannot claim ITC on capital goods, services, or inputs used for generation/transmission — leading to embedded taxes (estimated 8-10% cost embedded). Industry demands GST inclusion for ITC benefits.

Solar & Renewable Energy — 12%

Solar panels/modules: 12% GST (increased from 5% in Oct 2021 to boost domestic manufacturing via PLI scheme). Solar inverters: 12%. Solar power generating systems: 12%. Wind-operated electricity generators: 12%. Biomass briquettes: 5%. Bio-gas plant components: 12%. Renewable energy certificates (RECs): exempt. Wind turbine parts: 18%. Solar cells (unassembled): 25% customs + 12% GST.

Coal & Mining Inputs — 5% + Cess

Coal: 5% GST + GST Compensation Cess of ₹400 per tonne (total effective ~15-17%). Lignite: 5% + ₹400/tonne cess. Coke: 18%. Iron ore/manganese ore: 5%. Fly ash (waste): 5%. Coal transportation: 5% (GTA) or 18% (other modes). The compensation cess on coal was a major revenue source for the compensation fund (₹50,000+ Cr annually). Cess continues beyond June 2022 for loan repayment.

Petroleum Products — Excluded from GST

Five petroleum products remain OUTSIDE GST: (1) Crude oil, (2) Petrol/Motor Spirit, (3) Diesel/HSD, (4) Aviation Turbine Fuel (ATF), (5) Natural Gas. These attract state VAT + central excise (not CGST/SGST). States earn ₹2-3 lakh Cr from petroleum taxes — largest revenue source. GST Council can include them 'at a date recommended by Council'. No consensus yet. LPG (domestic): 5%, LPG (industrial): 18%.

Electrical Equipment & Accessories

LED lights/fixtures: 12% (reduced from 18% in 2021). Transformers: 18%. Switchgear: 18%. Electrical wires/cables: 18%. UPS/inverters (non-solar): 18%. Power capacitors: 18%. Electric motors: 18%. Circuit breakers: 18%. Meters (energy/electricity): 18%. Power transmission towers: 18%. Insulators: 18%. Generators/DG sets: 18%. Electric vehicle chargers: 18%.

EV & Clean Energy Transition

Electric vehicles (EVs): 5% GST (reduced from 12% in 2019 to promote adoption). EV chargers/charging stations: 18%. Lithium-ion batteries: 18%. Hydrogen fuel cells: 18% (under review for reduction). Ethanol for blending with petrol: 5%. Biodiesel: 12%. CNG (Compressed Natural Gas): outside GST (state VAT). Green hydrogen: under deliberation for special treatment.

Energy Sector — GST Rate Table

Item/ServiceHSNGST RateNotes
Electricity supply2716ExemptState electricity duty applies instead
Solar panels/modules854112%Increased from 5% (Oct 2021)
Wind turbines850212%Renewable energy equipment
Coal27015% + ₹400/t cessCompensation cess continues
Petrol/Diesel/ATF/CNG2710Outside GSTState VAT + Central Excise
LPG (domestic)27115%Subsidized cylinder
LPG (industrial/commercial)271118%Non-domestic use
LED lights/luminaires940512%Reduced from 18% (2021)
Batteries (lithium-ion)850718%EV and electronics
Electric vehicles87035%Reduced from 12% (Aug 2019)
Transformers850418%Power distribution
Ethanol (for blending)22075%Fuel blending program

Frequently Asked Questions

Why is electricity not under GST?
Electricity is exempt from GST because states refused to give up electricity duty (their 2nd largest revenue source after VAT on petroleum). States collectively earn ₹50,000+ Cr annually from electricity duty/cess. Including it under GST would shift revenue to the Centre and require complex compensation. The consequence: power generators/distributors cannot claim ITC on inputs (coal, equipment, services), embedding 8-10% hidden tax in power costs.
What is the GST on solar panels in India?
Solar panels/modules attract 12% GST (HSN 8541). This was increased from 5% to 12% effective October 1, 2021 (47th Council meeting recommendation, Notification 08/2021). The increase was deliberate — to make domestic manufacturing competitive against cheap Chinese imports (which attracted Basic Customs Duty + 12% IGST). Solar inverters and power generating systems also attract 12%.
When will petroleum products come under GST?
There is no confirmed date. Article 279A(5) states the Council shall recommend the date. Challenges: (1) States earn ₹2-3 lakh Cr from petroleum taxes — they will not give this up without guaranteed compensation, (2) Including petroleum at 28% would REDUCE prices (current combined tax is 50-60%), which means revenue loss, (3) ITC cascade would reduce tax base further. Most experts predict 2027-2030 timeline, starting with natural gas and ATF.
What is the GST compensation cess on coal?
Coal attracts 5% GST plus a Compensation Cess of ₹400 per tonne. The cess was introduced to fund the GST Compensation Fund (paying states for revenue shortfall). Originally meant to expire June 2022 (5 years), it was extended to March 2026 to repay borrowings made during COVID-19 (₹2.69 lakh Cr borrowed in 2020-21 and 2021-22). Effective tax on coal: approximately 15-17% including cess.

Energy Sector Compliance — Coal Cess to Solar ITC

Laabam.One handles the unique complexity of energy sector GST — excluded petroleum tracking, coal cess computation, solar rate changes, electricity duty reconciliation, and EV incentive compliance.

Explore GST Law