Breaking Down India’s Accelerated Depreciation Benefits for Solar Did you know businesses in India can recover up to 60% of their solar investment in the first year alone through tax benefits?
India’s solar energy sector has witnessed remarkable growth over the past decade, with installed capacity growing to over 105 GW in early 2025. This rapid growth is the result of a combination of favourable government policies, declining technology costs, and financial incentives designed to encourage adoption across various sectors.
Among these incentives, Accelerated Depreciation (AD) stands out as one of the most powerful financial tools driving solar investments across the country. This tax benefit allows businesses to depreciate solar assets at an accelerated rate, greatly improving the financial viability of solar projects and accelerating the payback period. As India continues its ambitious journey toward achieving 300 GW of solar capacity by 2030, understanding how AD benefits work has become essential for businesses looking to optimize their energy investments while contributing to the nation’s clean energy transition.
What is Accelerated Depreciation?
Depreciation refers to the reduction in the value of an asset over time due to factors like wear and tear. Accelerated depreciation allows businesses to deduct a higher percentage of this depreciation in the early years of the asset’s life.
Here’s how Accelerated Depreciation can turn your solar switch into smart financial move.
For solar power systems in India, the government has established special provisions that permit businesses to claim depreciation at significantly higher rates than normal. Currently, solar power projects qualify for an accelerated depreciation rate of 40% on a written down value (WDV) basis.
For solar energy systems, this means companies can significantly reduce their taxable income shortly after installation, leading to substantial tax savings. This approach not only improves cash flow but also shortens the payback period of the investment.
Understanding the Depreciation Rate for Solar Projects: How Much Can You Claim?
Current Rates Explained Under current Indian tax laws, solar systems qualify for specific asset categories eligible for accelerated depreciation. The current provisions allow:
● Accelerated Depreciation: Businesses can claim 40% depreciation on the cost of solar installations in the first year of operation.
● Additional Depreciation: An extra 20% depreciation may be claimed if certain conditions are met, such as the acquisition of new machinery or plant for manufacturing purposes. (India Briefing)
This means that eligible businesses can potentially depreciate up to 60% of the asset’s value in the first year, provided the asset is operational for more than 180 days within the fiscal year. If the asset is in use for 180 days or less, the depreciation benefit is proportionately reduced.
For a typical commercial solar installation, the payback period can reduce from 5-6 years to 3-4 years when solar panel tax incentives are effectively utilized. This acceleration makes solar investments increasingly competitive with other capital deployment options available to businesses.
Who Can Claim AD Benefits?
To avail of the accelerated depreciation benefits for solar assets, businesses must meet the following criteria:
● Ownership: The solar asset must be owned by the business claiming the depreciation.
● Usage: The asset should be put to use in the business operations.
● Operational Days: To claim the full depreciation benefit, the asset must be operational for more than 180 days in the fiscal year. If it is operational for 180 days or less, the depreciation benefit is halved.
● Taxable Income: The business must have taxable income against which the depreciation can be offset.
Tax Benefits For Solar Investments In India
Utilizing accelerated depreciation for solar investments offers several strategic benefits:
1. Immediate Tax Relief: By reducing taxable income significantly in the initial years post installation, businesses can achieve immediate tax savings.
2. Improved Cash Flow: The tax savings enhance liquidity, allowing businesses to reinvest funds into core operations or other strategic initiatives.
3. Shortened Payback Period: Accelerated cost recovery reduces the time required to recoup the initial investment, making solar projects more financially attractive.
4. Alignment with Sustainability Goals: Investing in solar energy aligns with corporate social responsibility objectives and demonstrates a commitment to sustainable practices.
Latest Policy Updates and Support
The Indian government has been proactive in promoting renewable energy through various fiscal incentives. The Union Budget 2025 introduced measures such as tax holidays and extended accelerated depreciation benefits for solar developers to enhance project viability. Additionally, the Production-Linked Incentive (PLI) scheme for solar modules was extended with an additional allocation to promote domestic manufacturing and reduce reliance on imports.
Why is Accelerated Depreciation Important?
Accelerated Depreciation represents one of the most important financial incentives driving India’s solar revolution. By allowing businesses to frontload tax benefits, AD improves project economics, accelerates payback periods, and enhances the overall attractiveness of solar investments. While the specific rates have evolved over time, the fundamental structure continues to provide substantial support for India’s ambitious renewable energy targets.
For businesses across sectors, understanding and strategically leveraging AD benefits can transform solar from a sustainability initiative into a compelling financial investment. As the policy landscape continues to evolve, staying informed about eligibility criteria, documentation requirements, and potential changes will be essential for optimizing returns from solar investments.
Take the Next Step with GREW Solar
We support this financial advantage with advanced, performance-driven solar PV modules that are designed to deliver long-term value. As a module manufacturer committed to quality and scalability, our focus is to equip businesses with the right technology that aligns with policy benefits like Accelerated Depreciation.
With a fully operational 3 GW module facility and expansion plans taking us to 8 GW of modules and 3 GW of cell manufacturing by 2026, GREW Solar stands ready to support India’s growing demand for solar infrastructure with dependable, Made-in-India solutions.
Our team can guide you in aligning your solar procurement strategy with depreciation rate for solar projects, backed by quality-tested modules that deliver consistent long-term performance.
Contact us to learn how GREW Solar’s next-gen modules can support your clean energy goals while helping you maximize financial returns.
Learn more about our modules here.
FAQs
1. What is accelerated depreciation for solar?
Accelerated depreciation for solar is a tax benefit that allows businesses to claim a higher rate of depreciation on solar energy assets in the initial years. This reduces taxable income and improves the payback period of solar investments.
2. What is the depreciation period for solar panels in India?
Under the current Indian tax laws, solar panels qualify for 40% depreciation in the first year, and up to 60% if additional conditions are met. The total useful life of a solar system is typically estimated at 25 years.
3. How do you calculate accelerated depreciation for solar assets?
Accelerated depreciation is calculated using the Written Down Value (WDV) method. For solar panels, businesses can depreciate 40% of the asset’s value in the first year, and if conditions are met, an additional 20% can be claimed.
4. What is the useful life of solar panels?
Most commercial solar panels in India have a useful life of 25–30 years, although financial calculations for depreciation are often based on a shorter asset life due to accelerated tax provisions.
5. Is additional depreciation allowed on solar plants?
Yes, an additional 20% depreciation is allowed in the first year for new plants and machinery under certain conditions, including solar installations for manufacturing businesses.
6. What is the difference between MACRS and ACRs?
MACRS (Modified Accelerated Cost Recovery System) and ACRs (Accelerated Cost Recovery System) are depreciation systems used in the U.S. In India, accelerated depreciation is governed by the Income Tax Act under Section 32.