Solar/ Income tax benefits
Finance Minister Nirmala Sitharaman needs to make gainful use of tax design to better allocate resources for stepping-up green, environmentally-benign energy. In her last budget, she did provide income-tax benefit for loan-purchase of electric vehicles (EV). The way forward, surely, is to rationalise and extend the tax deduction on offer, Rs 1.5 lakh, to also include solar roof-top power systems.
Note that India has set the target to set-up 100 GW of solar power generation capacity by 2022 (1Giga Watt is 1,000 Mega Watt). Note also that of the 100 GW target, 40 GW capacity is proposed to be made available as de-centralised solar roof-top units. And it is in this segment that actual progress has been lacklustre, quite poor indeed.
The national target for solar power also includes 40 GW of utility-scale solar plants and 20 GW of ultra-mega solar parks. There has been considerable capacity addition in the above two segments, about half the target has been actualised. But solar roof-tops remain the laggard; the situation can well be changed with fiscal incentives. International experience suggests income-tax benefits can shore up investment in roof-top solar panels, like it did in the US for instance.
It is true that there’s already policy in place to boost grid connected solar roof-top power panels. There’s also 40% subsidy on benchmark capital costs on offer for units of up to 3KW capacity, and 20% for larger units up to 10 KW. However, the vexed finances of power distribution companies or Discoms remain a challenge for policy makers nationally. And pending sustained improvement in Discoms finances, it would be rather unrealistic to expect a big rev up of capacity in grid-connected solar roof-top units. In any case, there is huge potential to fiscally boost capacity for off-grid solar roof-top.
The way ahead is to provide income-tax benefits for installing such decentralised roof-top power units of say, 0.5 KW to 3 KW. The solar facilities set-up can be gainfully used to recharge phones, inverters, laptops and other gadgets. It should also be possible to recharge small EVs like two-wheelers using solar power at home effectively at zero-marginal cost, after the roof-top panel loans are fully paid back in a few years. The societal benefits would be large indeed. Mobile data usage in India is massive globally, which means frequent need to charge phones. And given the low per capita commercial energy use across the nation, proactive policy to shore up renewable power would be path-breaking for charging phones and even inverters, which are now essential gadgets in smaller towns and the country-side generally that lacks quality power supply.
Further, solar-charging two-wheeler EVs would also have fiscal implications, and sooner than later. It is a fact that two-wheelers now consume more petrol than larger vehicles. And convenient solar recharge of two-wheelers can well boost demand for EVs, especially following the income-tax benefit on offer since last year. But if the tax exemption is also available for purchase of solar roof-tops, within the overall Rs 1.5 lakh limit, it should rev up demand for smaller EVs.
The idea of course ought to be to step-up last mile connectivity for public transport options like metro trains services for daily commuting. The reduction of petrol-powered two-wheelers going forward, and consequently the corresponding reduction in crude oil imports, would have huge, rising and welcome fiscal implications.
Of course, to see to it that there is quality supply of solar panels for the roof-top units, and also post-installation services, only makers and system integrators fulfilling certain pre-determined technical and financial criteria do need to be made in charge.
And if the above specifications are well and good, future grid-connectivity of solar roof-top units can be envisaged, as Discoms finances improve and they are in a position to actually buy power as a matter of everyday routine from consumers. It would all be for the greater good: leveraging solar energy to duly rev up power supply.