Accelerated Depreciation Tax Benefits Explained

Accelerated Depreciation Tax Benefits Explained

Accelerated Depreciation Tax Benefits Explained for Commercial and Industrial Users

MNRE (Ministry of New and Renewable Energy – Central Government) has set a target to install 227 Gigawatt (22,70,00,000 kilowatt) by 31 March 2022. To achieve the same they are promoting solar in many ways.

For commercial and industrial users of electricity, the tax incentives offered on installing a solar power plant by the Government of India are quite beneficial and make the choice of solar power a thriving and sustainable reality for commercial users. In order to promote the use of solar power in commercial and industrial segments, the Govt. of India offers accelerated depreciation of fixed assets associated with a solar power plant. The current rate of acceleration which can be claimed in a year is 40%.

The accelerated depreciation benefit allows the commercial and industrial users of solar power in India to depreciate their investment in a Solar Power Plant at a much higher rate than general fixed assets. This in return allows the user to claim tax benefits on the value depreciated in a given year.

The following example further illustrates the point for your ease of understanding–

Let’s say a commercial or industrial user, Example Pvt. Ltd., falls under an income tax bracket of 30%. Now lets say this user builds a general asset that is valued at Rs. 1 Crore in a given financial year, with an expected asset life of 20 yrs. Under normal circumstances, the user will be able to claim an annual depreciation of 5% of Rs. 1.0 Crore (considering linear depreciation, 100%/20yr = 5%/yr). for purpose of income tax.

This implies that the user will be able to claim tax benefit of 30% of 5% of Rs. 1.0 Crore per year = Rs. 1.5 Lakh per year for next 20 years.

However, when the investment is made in a Solar Plant, the user is allowed to depreciate the asset at 40%, thereby allowing the user to completely depreciate the asset within three years term, and saving a tax of Rs. 12 Lakh, Rs. 12 Lakh and Rs. 6 Lakh in the first, second and third year of operation respectively.

For anyone who appreciates time and value of money, the proposition of saving lakhs in taxes within only the first three years of installing a Solar PV system is lucrative compared to saving the same amount over a period of twenty years. Thus the project ROI (Return on Investment) increases by the virtue of accelerated depreciation.

To know more in detail please write to us.

2 Responses

  1. i want to invest in solar rooftop of 10 lakh asset value.
    How should i use 40% depriciation to my benefit in tax savings

    1. Dear Mr. Amit Sojitra,
      Thanks for showing interest in installing a SolarMaxx Solar Power system.
      Depending on your current electricity connection demand and the availability of space on your roof, we will be able to determine the capacity of Solar Rooftop system that we can install on your roof.
      Investments made in purchase and installation of your Solar rooftop system are eligible for accelerated depreciation benefits. Your financial consultant will be the best at advising you on how to incorporate the same for tax savings.
      We request you to kindly email us your contact no. at to help us get in touch with you to discuss further.
      Team SolarMaxx

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