Solar energy isn’t just about reducing your electricity bills — it’s also a powerful tool for saving on income tax. If you’re a Commercial or Industrial (C&I) user, the Indian government offers a major financial incentive under the Income Tax Act, Section 32, that allows you to claim up to 60% depreciation on your solar plant investment in the very first year.
📜 Legal Framework Under Section 32 of Income Tax Act
Solar plants qualify under:
Section 32(1)(ii) – for normal depreciation
Section 32(1)(iia) – for additional depreciation (only for manufacturers)
Asset Category: Plant & Machinery
Classification: Renewable Energy Devices
Schedule: Serial No. 13(x) – Solar Power Generating Systems
✅ Conditions to Claim Accelerated Depreciation
To avail the 40% or 60% depreciation, the following conditions must be met:
| Clause | Condition |
|---|---|
| Ownership | The asset (solar plant) must be owned by the assessee. Leased or rented systems are not eligible. |
| Usage | The solar plant must be used for business or professional activity during the financial year. |
| New Asset | The asset must be new, not second-hand or reinstalled. |
| Put to Use | It must be installed and operational before 31st March of the financial year. |
| September Rule | If commissioned after 30th September, only 50% of eligible depreciation can be claimed that year. |
| Additional Depreciation (20%) | Only manufacturing units (or companies engaged in power generation) are eligible for this, and only for new plant & machinery. |
💰 How Much Tax Can You Actually Save?
Let’s say you install a solar plant worth ₹1 crore.
🎯 Key Assumptions:
Tax Slab: 30%
Depreciation Method: Written Down Value (WDV)
Commissioned before 30th September
Owned & newly purchased system
🏢 A. For a Non-Manufacturer (Eligible for 40% Depreciation)
| Year | Depreciation (40%) | Asset Value Remaining | Tax Saving @30% |
|---|---|---|---|
| 1 | ₹40,00,000 | ₹60,00,000 | ₹12,00,000 |
| 2 | ₹24,00,000 | ₹36,00,000 | ₹7,20,000 |
| 3 | ₹14,40,000 | ₹21,60,000 | ₹4,32,000 |
📊 Total Tax Saving in 3 Years = ₹23,52,000
🏭 B. For a Manufacturer (Eligible for 60% Depreciation in Year 1)
| Year | Depreciation (40% + 20%) | Asset Value Remaining | Tax Saving @30% |
|---|---|---|---|
| 1 | ₹60,00,000 | ₹40,00,000 | ₹18,00,000 |
| 2 | ₹16,00,000 | ₹24,00,000 | ₹4,80,000 |
| 3 | ₹9,60,000 | ₹14,40,000 | ₹2,88,000 |
📊 Total Tax Saving in 3 Years = ₹25,68,000
✅ Summary of Benefits
| Feature | Non-Manufacturer | Manufacturer |
|---|---|---|
| Eligible Depreciation (Year 1) | 40% | 60% |
| Income Tax Slab | 30% | 30% |
| Year 1 Tax Saving | ₹12 Lakhs | ₹18 Lakhs |
| Total Tax Saving (3 Years) | ₹23.52 Lakhs | ₹25.68 Lakhs |
| Faster Payback | ✅ | ✅✅ |
⏳ Impact of Post-September Installations
If your solar plant is commissioned after 30th September, only 50% of depreciation (i.e., 20% or 30%) can be claimed in Year 1.
For example:
Manufacturer installing after 30th Sept can only claim 30% in Year 1 instead of 60%.
The balance continues in future years, delaying the tax savings.
🚀 Key Advantages to Your Business
| Benefit | Explanation |
|---|---|
| 💸 High Initial Tax Shield | Claim up to ₹18 Lakhs tax savings in Year 1 alone. |
| 📈 Improved Cash Flow | Lower tax outgo frees up funds for reinvestment. |
| 🧾 Faster Payback Period | Depreciation benefit adds to overall project ROI. |
| 🏢 Applicable to C&I Users | Whether SME or large enterprise, AD is available to all eligible businesses. |
🧠 Final Thought
Accelerated Depreciation is a legally backed, government-supported incentive that can reduce your tax burden dramatically. If your business is in the 30% tax bracket, this alone can recover 25–27% of your solar investment within just 3 years.
✅ Pro Tip: Always ensure the plant is owned, new, and commissioned before 30th September to maximize benefits.
