GST Calculation on On-Grid Solar Panel System: Guide for 2026 You've decided to go solar. Smart move. But then your installer hands you an invoice with a flat 8.9% GST applied across the entire system — and it looks clean, it looks simple, and it is completely wrong. That single mistake on a GST invoice can trigger scrutiny, demand notices, and penalties that wipe out every rupee you saved on the solar system itself. Understanding how GST actually works on an on-grid solar panel system isn't optional anymore. It's essential.
What Is an On-Grid Solar Panel System? A solar panel system that is connected to the grid at all times, also known as a grid-tied or grid-connected system, will produce solar energy during the daytime. Any extra electricity generated from the solar panel system can be sent back to the local utility grid when there is not enough solar energy being generated by the solar panel system. A typical on-grid solar panel system will not use batteries, so it is less expensive than other types of solar power systems (off-grid solar or backup solar). This is why most homeowners with solar panel systems in India are using an on-grid solar power system for their home or for commercial and industrial applications.
An on-grid solar panel system consists of solar PV panels, an inverter designed to work with the grid, mounting systems for the panels, wiring components, the installation of the wiring components to connect the inverter to the utility grid, and other materials that are needed to install the on-grid solar panel system.
These materials have different Goods and Service Tax (GST) rate codes associated with each one of them and, therefore, create the potential for complex billing issues.
Current GST Rates on Solar Components The GST Council, in its 56th meeting , made a major move during its 56th meeting by lowering the GST rate on solar and renewable energy equipment from 12% to just 5%. This change came into effect on September 22, 2025, and marks a big win for the solar industry. For anyone planning to install an on-grid solar system, this update directly affects how GST is calculated. Here's how the rates break down today:
Component HSN Code GST Rate Solar PV Modules / Panels 8541 5% Solar Power Generating System (complete) 8541 5% Grid-Tied Inverter (solar-specific) 8504 5% Mounting Structure / Frame 7308 18% ACDB / DCDB / Wiring 8537 / 8544 18% Earthing / LA / Civil Work Various 18% Installation & Commissioning Services SAC 9954 18% Batteries (non-lithium) 8507 18%
Why 8.9% Is Wrong for GST Billing — Understand This Once and For All Here's the number that causes the most confusion. When you apply 5% GST on 70% of the system value and 18% GST on 30% of the system value, the calculated effective rate comes to approximately 8.9%. The math checks out perfectly:
(70% × 5%) + (30% × 18%) = 3.5% + 5.4% = 8.9%
That 8.9% is real, but only as a mathematical estimate — not an actual GST bracket. Big difference.
India's GST system has five slabs: 0%, 5%, 12%, 18%, and 28%. There's no 8.9%. When you file GSTR-1 or GSTR-3B, the portal won't accept it. Period.
Billing at 8.9% creates problems. Your invoice doesn't match your returns. This triggers reconciliation failures, ITC mismatches, and scrutiny notices.
Businesses that've done this faced demand notices and penalties. Don't make that mistake.
Use 8.9% only to estimate total project cost — never on an actual invoice.
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The Two Correct Billing Methods for On-Grid Solar Systems There are exactly two correct ways to raise a GST invoice for an on-grid solar project. The method you use depends simply on the size of the system.
Method 1 — The 70:30 Ratio Pattern (For Systems up to 10 kW) This is the standard approach for smaller residential and commercial rooftop systems. It's prescribed under Notification No. 24/2018-Central Tax (Rate) and treats the entire solar installation as a single composite supply — one project, one invoice.
The logic is straightforward. Out of your total contract value, 70% is treated as supply of goods and taxed at 5% GST. The remaining 30% is treated as supply of services and taxed at 18% GST. You don't need to itemise every component separately. The ratio does the work for you.
Here's what this looks like on an actual invoice for a 5 kW system priced at ₹2,50,000:
Component Value GST Rate GST Amount Goods (70% of ₹2,50,000) ₹1,75,000 5% ₹8,750 Services (30% of ₹2,50,000) ₹75,000 18% ₹13,500 Total GST ₹22,250 Total Invoice Value ₹2,72,250
Notice the effective rate works out to 8.9% — but that's the result of applying the correct rates, not a rate you type into the invoice yourself. The portal sees 5% on goods and 18% on services. That's all it needs.
Method 2 — Separate Billing (For Systems Above 10 kW) For larger commercial, industrial, or utility-scale projects, the 70:30 single-invoice approach gets unwieldy. These projects typically run across multiple phases, involve multiple vendors, and carry significant ITC implications. Separate billing gives everyone — the supplier, the buyer, and the tax department — a clean paper trail.
Here, two distinct invoices are raised for the same project. The first covers the supply of goods — solar panels and solar-specific inverters at 5% GST, and mounting structures, wiring, ACDB, DCDB at 18% GST. Each item is billed at its own applicable rate. The second invoice covers installation and commissioning services — civil work, transportation, testing, and all on-site labour — taxed at a flat 18% GST under SAC 9954.
Two invoices, one project, zero ambiguity. The buyer can claim ITC precisely against each line item, which matters enormously when you're dealing with systems worth crores and ITC running into lakhs.
Conclusion — Bill Right, File Right, Stay Protected On-grid solar installation in India is a composite transaction. It involves goods taxed at 5% and services taxed at 18%, and the only legally valid ways to reflect that on an invoice are the 70:30 ratio method or separate billing.
The 8.9% figure is a useful tool for cost estimation — nothing more. Put it on an invoice and you're creating a document that the GST portal can't process correctly and that auditors will flag immediately.
With the GST rate on solar panels now at 5% — down from 12% since September 22, 2025 — the cost of going solar has never been lower. Don't let an avoidable billing error undo that advantage. Get the invoice right the first time, claim your ITC cleanly, and let the system work in your favour.
FAQs What is the GST rate on solar panels in 2025–26? The GST charge on machinery (including equipment) used in the manufacture of a product (including installation) is generally 5% (note: state law may vary).
Is 8.9% a valid GST rate for solar systems? No. The rate of 8.9% is only an effective rate to estimate the GST for a solar system and does not exist as an actual applicable GST level when producing invoices.
What is the 70:30 method in solar GST billing? The 70:30 method is a method for separating the value of composite supply projects (i.e. project including both goods and services) into 70% goods value and 30% service value (i.e. goods taxed at 5% GST; services taxed at 18% GST).
Can businesses claim ITC on solar installations? Yes, if a business owner uses a solar system for commercial reasons and meets the conditions of GST, it is eligible to claim ITC.
When is separate billing used instead of 70:30? When should I use separate billing versus the 70:30 method for billing on solar systems?
Typically, separate billing will be used for larger multiple good/services combination solar projects, so better clarity can be achieved for input tax credits (ITC).
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