Accelerated Depreciation (AD) on solar is one of the most powerful tax benefits available to businesses in India — yet fewer than 30% of commercial and industrial solar buyers actually claim it correctly. Under Section 32 of the Income Tax Act, a solar power plant qualifies for 40% depreciation in the very first year of installation. On a ₹50 lakh solar project, that is a ₹20 lakh deduction from taxable income in Year 1 alone — translating to a direct tax saving of ₹6 lakh for a company in the 30% tax bracket.
Key takeaway. Businesses installing solar in India can claim 40% Accelerated Depreciation under Income Tax Act Section 32 in Year 1. At a 30% corporate tax rate, a ₹50 lakh solar plant generates a ₹6 lakh tax saving in the first year. This AD benefit effectively reduces the net system cost by 12%, significantly improving payback from 4–5 years to 3–3.5 years for commercial installations. Heaven Green Energy’s project team assists clients with AD planning and CA coordination.
This guide explains the exact AD rates, how to calculate your tax saving, how to structure your books to claim it correctly, and the common mistakes that cause companies to lose this benefit entirely.
What Is Accelerated Depreciation on Solar?
Depreciation is the accounting mechanism by which a business writes off the cost of a capital asset over its useful life. Under the Income Tax Act, 1961 — Schedule II and Section 32, the normal depreciation rate for plant and machinery is 15% per year on the written-down value (WDV) basis.
Solar power plants, however, are categorised as “renewable energy devices” and qualify for a special 40% depreciation rate in the first year. This is the “accelerated” part — you write off 40% of the asset value in Year 1, rather than the 15% that applies to general machinery.
The legal basis is the CBDT Income Tax Rules, 1962 — Appendix I, Table Part A, Serial 8, which lists “Renewable energy saving devices: Solar power-based systems” at 40% depreciation rate.
One important clarification: this is a written-down value (WDV) depreciation, not straight-line. So in Year 1 you claim 40% of the full cost; in Year 2 you claim 40% of the remaining 60% (i.e., 24% of original cost); in Year 3 you claim 40% of the remaining 36% (i.e., 14.4% of original), and so on. The system never fully depreciates on paper — the tail years carry small amounts indefinitely.
For businesses that also access the glossary definition of accelerated depreciation, this rate was revised from 80% (pre-2017) to 40% following the Finance Act 2017. The 80% rate is gone; 40% is the current statutory rate.
💡 Fast tip
The 40% AD rate applies to the full system cost including GST. If you paid ₹12% GST and cannot recover it via ITC, the entire GST-inclusive price is the depreciable asset value.
How to Calculate Your AD Tax Benefit: Step-by-Step
The AD Tax Benefit Calculator Framework we use at Heaven Green Energy involves five straightforward inputs:
Step 1 — Determine the depreciable asset value. This is the full installed cost of the solar plant including GST (if GST is not recovered via ITC). Include panels, inverters, batteries, mounting structures, cables, and installation.
Step 2 — Apply the 40% Year 1 AD rate. Multiply the asset value by 40%. This is your Year 1 depreciation deduction.
Step 3 — Apply your effective tax rate. Multiply the depreciation deduction by your corporate/business tax rate. Common rates: 22% (new regime, turnover above ₹400 crore), 25% (turnover below ₹400 crore), 30% (older regime). Include surcharge and cess if applicable; effective rates often come to 25.17%, 26%, or 31.2%.
Step 4 — Calculate the net tax saving. This is Step 2 × Step 3. It is the actual rupee tax you avoid paying in Year 1.
Step 5 — Calculate the effective system cost after AD. Subtract the Step 4 tax saving from the total system cost.
Here is a worked example for a 100 kW industrial solar plant:
Multi-Year AD Depreciation Schedule
Here is how the AD depreciation flows over the first five years on a ₹50 lakh solar plant:
| Year | Opening WDV | AD Rate | Depreciation Claimed | Tax Saving (31.2%) | Closing WDV |
|---|---|---|---|---|---|
| 1 | ₹50,00,000 | 40% | ₹20,00,000 | ₹6,24,000 | ₹30,00,000 |
| 2 | ₹30,00,000 | 40% | ₹12,00,000 | ₹3,74,400 | ₹18,00,000 |
| 3 | ₹18,00,000 | 40% | ₹7,20,000 | ₹2,24,640 | ₹10,80,000 |
| 4 | ₹10,80,000 | 40% | ₹4,32,000 | ₹1,34,784 | ₹6,48,000 |
| 5 | ₹6,48,000 | 40% | ₹2,59,200 | ₹80,870 | ₹3,88,800 |
| Total 5yr | — | — | ₹46,11,200 | ₹14,38,694 | — |
Over five years, nearly ₹14.4 lakh in tax is saved on a ₹50 lakh project. The Year 1 benefit alone (₹6.24 lakh) is more than the entire first-year electricity savings for many commercial buyers — making AD a powerful complement to the energy savings argument.
Ready to install? Talk to our solar engineer — we handle AD documentation, net metering, and 25-year support. Call +91 63904 05060 or request a callback.
Eligibility Conditions for Claiming AD on Solar
Not every solar installation qualifies automatically. The following conditions must be met:
- The entity must be a business. Individuals installing residential solar under PM Suryaghar cannot claim AD — they are not filing business income returns. Only proprietorships, partnerships, LLPs, private/public companies, and trusts with business income qualify.
- The solar plant must be “put to use” in the same financial year. Commissioning must happen before March 31 of the tax year in which you claim AD. If your plant is installed but not commissioned before March 31, the Year 1 AD falls into the next financial year.
- Use for at least 180 days in Year 1 for full rate. If the asset is used for less than 180 days in the first year, only 50% of the AD is allowed — meaning 20% instead of 40%. Plan your installation timeline to commission before October 1 to capture full-year benefit.
- The cost must be capitalised, not expensed. The solar plant must appear as a capital asset in your books. If you expense it directly to P&L, you lose the depreciation mechanism — though in practice no company should make this error.
- CAPEX model only. AD applies to owned assets. If you use an OPEX/PPA model (developer owns the system), the developer claims AD, not you. This is one of the key differences between OPEX and CAPEX solar.
⚠️ Watch out
The "put to use before March 31" and "180-day" conditions trip up many buyers every year. If your installation slips to April, you lose an entire year's AD benefit — worth ₹6+ lakh on a ₹50 lakh system. Commission by February at the latest to be safe.
AD vs. Other Solar Financial Benefits: What to Stack
AD is not the only financial benefit on commercial solar. Here is how it compares and combines with other incentives:
| Benefit | Who Can Claim | When | Quantum |
|---|---|---|---|
| Accelerated Depreciation (40%) | Businesses (CAPEX) | Year 1 primarily | Tax saving of 12–13% of project cost |
| PM Suryaghar Subsidy | Residential homeowners | Post-installation | ₹30,000–₹78,000 (1–3+ kW) |
| GST ITC | GST-registered businesses | Same year as invoice | 12–18% of component cost recovered |
| Solar RESCO / OPEX | Any entity | No upfront — developer gets AD | Zero capex, PPA rate savings |
| IREDA concessional loan | All solar buyers | Ongoing | 8.75–10.5% — lower than market |
For a commercial buyer, the optimal structure is: CAPEX + bank/IREDA loan + AD claim + GST ITC. This stacks maximum benefits. At Heaven Green Energy, we call this the “4-Layer Solar Finance Stack” and our project team helps clients implement all four layers simultaneously.
Read our solar financing options overview to understand how these layers interact.
Claiming AD: The Step-by-Step Process
- Commission the solar plant before March 31 of the financial year in which you want the Year 1 AD benefit.
- Capitalise the asset in books under “Plant and Machinery — Renewable Energy” at the full installed cost (inclusive of GST if not recoverable via ITC).
- Apply 40% WDV depreciation in the Schedule of Fixed Assets in your financial statements.
- Carry the depreciation to ITR — report it in Schedule DPM (Depreciation on Plant and Machinery) in ITR-6 or ITR-5 as applicable.
- Attach CA certificate (Form 3CD) with your tax audit report — the auditor must verify the asset capitalisation and depreciation calculation. The Income Tax Department’s Form 3CD guidance provides the full reporting format.
- Maintain documentation — installation contract, commissioning certificate, electricity generation records, and DISCOM net metering certificate are the four documents most likely to be asked for during scrutiny. MNRE’s commissioning guidelines specify what constitutes a valid commissioning certificate.
For more details on the claiming process, see our dedicated guide on how to claim accelerated depreciation on solar.
Pros and Cons of Claiming Accelerated Depreciation
- Year 1 tax saving of 12–13% of project cost — immediate cash benefit
- Reduces effective payback period by 0.5–1 year
- Stacks with GST ITC for double tax efficiency
- Continues to provide tax benefit for 8–10 years
- Only available under CAPEX model — not OPEX/PPA
- Requires profitable business to offset the deduction
- Tax audit and CA involvement adds compliance cost
- 180-day rule creates installation timeline pressure
How Heaven Green Energy Helps Businesses Claim AD
Heaven Green Energy has installed solar for over 500 commercial and industrial clients who have successfully claimed AD. Our project delivery timeline is structured to commission plants before February 28 whenever a client wants the current financial year’s AD benefit. We provide the commissioning certificate, DISCOM net metering documents, and detailed cost breakup that CA firms need for Form 3CD tax audit.
- Industrial Solar EPC — 100 kW+ plants with AD-optimised commissioning timelines.
- Commercial Solar — 10–100 kW with full tax documentation package.
- Solar Calculator — includes AD tax saving in the ROI calculation.
- Contact our team — our project finance specialists will model your exact AD benefit before you commit.
According to CEEW’s 2025 commercial solar report, AD benefit is the second-largest financial driver (after electricity savings) for commercial solar adoption in India. Don’t leave it on the table.
Frequently Asked Questions
What is the current accelerated depreciation rate on solar in India?
The current Accelerated Depreciation rate on solar power plants in India is 40% per year on Written Down Value (WDV) basis, under Section 32 of the Income Tax Act read with Income Tax Rules Schedule Appendix I. This rate was reduced from 80% in 2017. It applies to solar panels, inverters, batteries, mounting structures, and all balance-of-system components when capitalised as a single solar plant asset.
Who can claim AD on solar — residential or commercial?
Only businesses can claim AD — this includes proprietorships, partnerships, LLPs, private and public limited companies, and trusts with business income. Residential homeowners installing solar under PM Suryaghar cannot claim AD because they don’t file business income tax returns. The system must be owned by the business (CAPEX model), not leased or under PPA.
How much tax saving can I get from AD on a ₹1 crore solar plant?
On a ₹1 crore solar plant at 40% AD, Year 1 depreciation is ₹40 lakh. At a 31.2% effective tax rate (30% + surcharge + cess), the Year 1 tax saving is ₹12.48 lakh. Over five years, total tax savings accumulate to approximately ₹28.8 lakh. This means the effective net cost of the plant after five years of AD is approximately ₹71.2 lakh rather than ₹1 crore.
Does the 40% AD apply to the battery as well?
Yes, if the battery is part of the solar plant and capitalised as a single integrated asset, the 40% AD applies to the entire system cost including battery storage. If the battery is capitalised separately as “electrical fittings,” it may attract a different depreciation rate. Always consult your CA on the correct capitalisation approach.
Can I claim AD on a financed solar plant (bank loan)?
Yes. AD is based on asset ownership, not how you paid for it. Even if you financed the solar plant through SBI or IREDA, the asset appears on your balance sheet at the full purchase cost and the full 40% AD is claimable. The loan is a liability; the asset value is unaffected by how it was financed.
What if my company is in a tax loss situation — does AD help?
If your company has no taxable profit in Year 1, you cannot use the AD deduction immediately. However, under the Income Tax Act, unused depreciation is carried forward indefinitely as “Unabsorbed Depreciation” and can be set off against profits in future years. So the AD benefit is not lost — it is deferred.
What documents are needed to claim AD on solar?
You need: (1) Solar installation contract showing asset cost, (2) Commissioning certificate from the EPC company, (3) DISCOM net metering certificate, (4) Electricity generation records for the year, (5) Fixed asset register entry showing the solar plant capitalised at the correct value, and (6) CA-certified Form 3CD for the tax audit. Heaven Green Energy provides items 2, 3, and 4 as standard project deliverables.
