Accelerated Depreciation on Solar: The 40% Tax Benefit Explained

When you compare commercial rooftop solar options, start with the electricity your facility will use. Then ask your chartered accountant how owning the plant could affect taxable profit. The 40% accelerated depreciation provision can bring a larger deduction into the early years of an eligible project, but the deduction is not money paid to you by the government.

Ordinary plant and machinery in the comparison has a 15% written down value rate. Solar generation equipment is discussed at 40% under section 33 of the Income-tax Act, 2025, in force from 1 April 2026. The value of that difference depends on taxable income, entity structure, tax regime and the day the plant is put to use.

This guide works through the timing and a numerical example, then lists the documents your accountant may need. If you are also considering a developer-owned system, read the CAPEX and RESCO model comparison before treating depreciation as a reason to buy.

How the 40% deduction works

Depreciation is an expense recorded for an asset used by a business. For tax purposes, an allowable deduction reduces taxable income. The 40% rate applies to the asset's written down value, so each year's calculation uses the balance left after the previous year's claim.

The section 33 treatment discussed here covers eligible renewable energy devices, including solar PV modules, grid-tie inverters, mounting structures and related electrical balance of system. General machinery is shown in a separate 15% WDV block in this comparison. Ask your accountant which invoice items belong in the solar block.

Because the percentage is applied early, a full-rate claim can deduct more than 60% of an example asset's starting value across the first two financial years. It does not mean your tax bill falls by 60% of the installation price. Tax saved equals the allowable deduction multiplied by the tax rate that actually applies to your business.

Check the 180-day use rule

The Indian financial year runs from 1 April to 31 March. The first-year deduction depends on how long the new asset was actually put to use within that year. A delivered or mounted plant is not necessarily a commissioned one.

• Used for at least 180 days: An eligible business can apply the full 40% rate in the first year. Aiming for commissioning by 30 September leaves time in the financial year, but your accountant should count actual days of use.
• Used for fewer than 180 days: The first-year rate is half, or 20%. The undepreciated amount remains in the written down value block for later calculations at the applicable rate.

Plan backward from commissioning. DISCOM approval, meter installation and, where required, Chief Electrical Inspector to Government clearance may take weeks. Ask your EPC team for the expected inspection sequence and keep a margin for delays. The date shown on a purchase invoice alone does not establish when the plant began operating.

Calculate a three-year tax example

Consider an illustrative engineering unit or cold store that installs a 100 kWp rooftop plant for ₹40,00,000. The example excludes GST and assumes any input tax credit is handled separately where eligible. These are worked figures, not a Ray2Volt price or a quotation for your building.

Assume the plant qualifies for the full 40% first-year rate and the business has enough taxable profit at an illustrative effective tax rate of 25%, including surcharge and cess. On those assumptions, the WDV and tax effect look like this:

The first year's ₹16,00,000 deduction produces ₹4,00,000 of tax saving at the assumed 25% rate. Across three years, the worked tax saving is ₹7,84,000, close to 20% of the illustrative ₹40,00,000 plant cost. A business with a different tax rate or insufficient taxable profit will get a different result.

The same example assumes a 100 kWp plant produces 1,40,000 to 1,60,000 units a year in Andhra Pradesh and replaces commercial grid purchases. It showed a shift from an initial 4.5-year payback to around 3 to 3.5 years after the tax effect. Treat those periods as a scenario: typical business payback is 3 to 5 years, subject to a site audit and your tax position. To test your bill and roof, request a commercial rooftop estimate.

When you review a quotation, keep the two cash flows on separate lines. One line should show the grid units you expect to avoid each month, including any seasonal dip or export at a different settlement rate. The other should show depreciation against the written down value and the tax actually saved in each financial year. This makes it easier to see how much of the proposed return comes from electricity and how much depends on your tax position. Ask for a version without the tax benefit as well, so your investment decision still makes sense if your eligibility or profit changes.

Ask how your tax regime affects the claim

Two companies buying identical plants may see different tax outcomes. Their legal form, profit, existing deductions and elected tax regime all matter. Send the plant quotation and expected commissioning date to your chartered accountant before finalising the financial model.

Regular taxation and section 115BAA

The Taxation Laws (Amendment) Act, 2019 introduced a concessional 22% corporate tax option under section 115BAA. Choosing it affects the exemptions and deductions a company can use. Standard depreciation and any special accelerated treatment need to be checked against the regime actually chosen; do not assume the example's 25% tax shield applies under 115BAA.

Businesses on the regular regime, as well as eligible partnerships, LLPs and proprietorships, should ask their accountant whether the 40% WDV rate applies to their solar asset block. A lower headline tax rate and a faster deduction can affect cash flow differently over time. The accountant should compare both schedules, including other available deductions.

Minimum Alternate Tax

A company subject to Minimum Alternate Tax under section 115JB also needs a book-profit calculation. Book depreciation under company accounts can differ from income-tax depreciation. That difference may change the timing of the benefit and any MAT credit carried forward under the applicable rules.

Ownership and financing

Your business must own the plant to claim depreciation on it. Direct CAPEX purchase and a bank-financed purchase can both leave title with the business. Under a standard OPEX or RESCO PPA, the developer holds title and the customer buys power instead. Check the ownership documents, especially if the agreement includes a later transfer option.

Keep an audit file for the plant

A clean file helps your finance team establish what was bought, when it was used and how it entered the fixed asset register. Retain the documents alongside the tax calculation rather than trying to rebuild the timeline at year end.

1. Itemised GST invoices: Keep EPC bills identifying PV modules, inverters, mounting structures and electrical switchgear. Ask the accountant which amounts enter the depreciable asset cost.
2. DCR and ALMM records: Save manufacturer certificates relevant to module and cell compliance, including the June 2026 List-II shift where applicable.
3. CEIG clearance: Retain the inspection and safety approval if your installation requires it for high-voltage or industrial grid connection.
4. DISCOM commissioning proof: Keep the meter test, synchronisation and net-metering certificates from the local distributor, such as APSPDCL, showing the operating date.
5. Fixed asset register: Record the plant in your audited books with a capitalisation date that agrees with the commissioning evidence.

Decide whether ownership fits your business

A manufacturing unit, packaging plant, textile mill or cold store may be able to use solar electricity throughout the day. Ownership gives it the bill reduction and, where eligible, the depreciation claim. It also takes on financing, maintenance and future replacement costs.

If the business has taxable profit and capital or workable term debt, CAPEX may offer the stronger lifetime return. Test that conclusion with your accountant and a site estimate. Typical business payback is 3 to 5 years after a site audit. The panels have a 30-year performance warranty, but that warranty is not a promise of fixed annual generation.

Start with the rate your plant actually pays. Our guide to reading a commercial electricity bill can help you identify it before an engineer visits the site.

Confirm the tax position before investing

The worked amounts are indicative. Tax rules, schemes, rates and eligibility can change, and your company's accounting may change the result. Ask a chartered accountant to confirm the current section 33 rate, your eligibility, the 180-day calculation and any MAT or regime effect.

Ray2Volt designs and installs solar systems. We do not give tax or investment advice. Use our engineering estimate for the roof, output and equipment, then use your professional tax advice for the deduction and filing decision.

Questions about solar depreciation

Ray2Volt Solar Private Limited

We design, install, and service rooftop solar for homes and businesses across Tirupati district and Andhra Pradesh, from PM Surya Ghar residential systems to commercial and industrial plants. Every enquiry starts with a free power audit.