A two-day Goods and Services Tax (GST) Council meeting began on September 3, 2025, in New Delhi, with proposals to reduce taxes on green hydrogen, battery energy storage systems, and other clean energy components. The council, chaired by Finance Minister Nirmala Sitharaman with ministerial representatives from all states, is considering an overhaul of the GST regime that could make green energy technologies significantly cheaper.

Proposed Tax Reductions for Clean Energy

Green hydrogen and electrolyzers, currently taxed at 18 percent, are likely to see their GST rate lowered to 5 percent. Two government officials confirmed to Moneycontrol that the GST fitment committee had recommended this change in June, and the council is expected to approve it during the ongoing meeting. Battery storage systems are also set to receive tax relief, with GST likely to be slashed to 5 percent.

Currently, a disparity exists in the tax structure for batteries, with lithium-ion batteries taxed at 18 percent, while other types, including lead-acid, sodium, and flow batteries, face a 28 percent GST rate. For electric vehicles, the GST on batteries is already set at 5 percent. The council is also considering reducing the tax on solar panels and windmill components from the current 12 percent to 5 percent.

These reductions are part of a broader proposal to eliminate the 12 percent and 28 percent GST slabs and shift items to 5 percent, 18 percent, and 40 percent brackets.

Industry Impact and Government Mission

A tax reduction on green hydrogen, its derivatives, and equipment has been a long-standing demand from the industry since the cabinet approved the National Green Hydrogen Mission (NGHM) in January 2023. A senior executive from a leading private firm that has committed to invest in green hydrogen and its derivatives stated that the GST reduction will make the cost of green hydrogen in India the most competitive globally, providing a boost to the Central government's NGHM, which has experienced sluggish growth due to high costs.

The India Energy Storage Alliance (IESA) has been advocating for battery energy storage systems (BESS) to be taxed uniformly at 5 percent regardless of technology, similar to electric vehicles, to support the emerging sector. India is looking to rapidly expand BESS to make renewable energy available round-the-clock, which is vital for manufacturing activities and upcoming data centers.

Government Funding and Revenue Considerations

The government announced additional viability gap funding (VGF) worth INR 5,400 crore in June for developing 30 gigawatt-hour (GWh) of BESS. This funding comes in addition to an existing incentive worth INR 3,700 crore under which 13.2 GWh of BESS is being implemented. To compensate for revenue loss from reduced clean energy taxes, the council is considering increasing the levy on coal to 18 percent from its current rate of 5 percent.

The impact of the higher coal tax will be somewhat offset by the removal of the compensation cess, which expires on March 31, according to a government official. Currently, the 5 percent GST and compensation cess on coal amount to an effective rate of 15-40 percent, depending on the grade of coal.

Market Players and Energy Milestones

Reduced taxes on clean energy products could attract more investments from companies, including Reliance Industries, Adani Group, Tata Power, NTPC Ltd, Waaree Energies, and ReNew, while creating opportunities for new market entrants. A government official noted that if GST is reduced in the renewable sector, it will solve the problem of unsigned power purchase agreements, as distribution companies would gain confidence from even lower tariffs.

India recently crossed a milestone with 50 percent of its total installed electricity capacity coming from non-fossil fuel sources, accomplishing this target five years ahead of plan. Non-fossil fuel sources now comprise 242.78 GW of the total 484.82 GW installed capacity.

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