The Indian government has been taking numerous measures to promote renewable energy sources and drive the growth of the sector. One of the initiatives taken by the government is to provide certain benefits and incentives to the renewable energy sector like the Priority Sector Lending Certificates (PSLCs) and the Goods and Services Tax (GST) rate on renewable energy.
PSLCs are a tradable certificate that allows banks and financial institutions to meet their priority sector lending targets set by the Reserve Bank of India (RBI). The priority sector includes agriculture, micro, small and medium enterprises (MSMEs), export credit, education loans, housing loans, social infrastructure, renewable energy, and others. Banks and financial institutions that fail to meet their priority sector lending targets can purchase PSLCs from those who have exceeded their targets. The PSLCs are issued to those who have given loans to the priority sector and are available in different categories. One of the categories is renewable energy, which was introduced in 2015.
Renewable energy certificates (RECs) were earlier used to meet the renewable energy targets by obligated entities. However, the introduction of PSLCs has replaced the RECs. The PSLCs have made it easier for banks and financial institutions to meet their priority sector lending targets and also provided an additional source of revenue for the renewable energy sector.
The GST rate on renewable energy has been a matter of discussion since the introduction of the Goods and Services Tax (GST) in 2017. Initially, there was confusion regarding the GST rate on renewable energy sources as there was no clarity on whether it would be treated as a goods or a service. In September 2017, the GST Council clarified that the GST rate on solar panels would be 5%. However, the GST rate on other components of solar power generation systems like inverters, batteries, and modules was kept at 18%.
In June 2018, the GST Council decided to reduce the GST rate on all components of solar power generation systems to 5%. This was a positive move for the renewable energy sector as it helped lower the cost of setting up solar power plants. The GST Council also reduced the GST rate on bio-diesel from 18% to 5%. This move was aimed at promoting the use of bio-diesel as a green fuel.
The government's initiatives like the introduction of PSLCs and the reduction of GST rates on renewable energy sources have boosted the growth of the renewable energy sector in India. These measures have not only made it easier for banks and financial institutions to meet their priority sector lending targets but have also made renewable energy more affordable for the common people. The renewable energy sector has immense potential to drive economic growth and reduce the carbon footprint of the country.
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