India's Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs

This briefing by the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW) analyzes how the introduction of the Goods and Services Tax (GST) in India affected the costs and subsidies of solar photovoltaic (PV) and coal-fired thermal power. The analysis finds that the GST has created a relative bias in favor of coal by increasing the levelized cost of electricity (LCOE) for new solar PV plants while reducing variable costs for existing coal plants.

• The implementation of the GST reduced total tax subsidies for both solar PV and coal thermal power by 15.6 per cent and 16 per cent, respectively. Despite this proportional decline, the absolute level of government support for coal remains more than double that provided to solar PV.
• The GST is likely to cause a significant increase in the cost of generation for new solar PV plants. Specifically, the Levelized Cost of Electricity (LCOE) for solar park projects increased by 5.84 per cent post-GST. This is attributed to the GST Council's arbitrary method of taxing 70 per cent of a contract's gross value as goods (at 5 per cent GST) and 30 per cent as services (at 18 per cent GST), which assigns a higher share to the higher tax rate than is typically found in actual project costs.
• Existing coal-fired thermal power plants have experienced a reduction in variable costs under the GST. For plants using only domestic coal, the variable LCOE decreased by almost 1.6 per cent; for plants using a mix of 70 per cent domestic and 30 per cent imported coal, the decrease was approximately 1 per cent.
• The GST reform has created a relative bias favoring coal-based power over solar PV. This is due to the simultaneous increase in solar LCOE and the decrease in coal variable costs, which may influence investment decisions and constrain India's progress toward its target of 100 GW of installed solar capacity by 2022.
• The transition to GST effectively disbanded the National Clean Energy and Environment Fund (NCEEF). The Clean Environment Cess, which previously funded the NCEEF to support clean energy research and innovative projects, was merged into the GST Compensation Cess, with revenues now used to compensate states for losses from the removal of state-level taxes.

APA

International Institute for Sustainable Development (n.d.). India's Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs. https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf

Chicago

International Institute for Sustainable Development. India's Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs. n.d. https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=India's Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs |url=https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopmentndindias, author = {{International Institute for Sustainable Development}}, title = {{India's Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }