Solar Project to make money

Solar energy itself is cost-effective. Systems produce free energy with limited maintenance for their lifespan, which averages 30 to 35 years. However, many people have to decide if solar is worth the investment.

By installing solar panels, you are entitled to earn money for every kWh that is injected back into the grid and can also claim a significant tax credit amount.

How can Earn Money From Solar?

If you want to earn money with little investment, you must install solar panels. You don’t need to have a separate space or a ton of money to install it. In India, the government has introduced several financial incentives and tax benefits to promote the adoption of solar energy. These initiatives not only make solar installations more affordable but also offer substantial long-term savings.

As a result, the final cost after installation may be less than the sticker price. Furthermore, tax credits given for solar power could help reduce annual tax bills. However, the best way to profit from having solar panels installed on your roof is through net metering. The financial benefits of solar energy don't stem from selling excess power back to the grid but from significant savings and credits. Unfortunately, selling your solar power to generate income is not a profitable option. Your solar energy system will save you money that you would otherwise spend on your monthly electricity bill from the utility company. In case of large solar developers can profit from installing a solar system on leased property and selling that electricity back to the property owner, this won’t be the case for your average solar system investor.

Offsetting Electricity Costs

Then comes free electricity for the entire life of the solar system, which could extend beyond 25 to 30 years. By eliminating your need to purchase electricity from the utility company, you’re eliminating an otherwise unavoidable expense each month: your electricity bill.

So, Installing solar panels lets you cut your electricity costs. When you generate clean energy, your bills drop or vanish. This savings adds up over the years, making it a smart choice for Indian homeowners. Solar energy is one of the best investments that will get you a higher rate of Return on Investment (ROI). Most solar panel systems tend to pay for themselves over time.

Calculating Solar Panel Savings

To see how much you might save with solar panels, use IST solar panel savings DISCOM calculator Excel file for residential and commercial plant. These tools can guess your savings. They look at how much energy you use, your solar system’s size, DISCOM rates, and solar bonuses in India.

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Factors Affecting Savings

How much you save with solar panels depends on a few things. These include your system’s size, the cost to install, local electricity prices, and if you get solar bonuses or tax credits in India.

Saving on utility bills is the main benefit of solar panels. But there are other ways to earn money. Homeowners might make extra cash with community solar. They might also lease their roofs for solar companies to use. Yet, these chances to earn more are not very common, and how much you can make varies.

Tax Benefits for Solar Installations

Several tax benefits and incentives make solar installations financially attractive in India. Here’s a comprehensive look at the primary financial incentives available:

Section 32 of the Income-tax Act, 1961

Section 32 of the Income-tax Act outlines provisions related to depreciation on assets and provides the framework for the calculation of depreciation allowances. This section plays a crucial role in determining the taxable income of businesses by allowing them to account for the gradual loss in value of their assets over their useful lives.

Businesses installing solar power systems can avail of accelerated depreciation benefits under the Income Tax Act. This allows them to depreciate 40% of the asset's value in the first year, significantly reducing taxable income.

Under section 32(1)(iia)

If an assessee is engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, an additional depreciation of 20 percent of the actual cost of new machinery or plant (other than ships and aircraft) shall be allowed as deduction.

Tax Holiday under Section 80-IA

Projects involved in power generation, including solar power, can benefit from a tax holiday under Section 80-IA of the Income Tax Act. This provision allows for a 100% tax exemption on profits for any ten consecutive years within the first fifteen years of operation. This is a substantial incentive for large-scale solar projects.

Goods and Services Tax (GST) Benefits

A uniform lower GST rate for solar energy equipment and services could reduce the overall cost of green energy projects. Currently, solar modules have a 12% GST, and solar power plant installation services have an 18% GST.

GST rates on solar power based devices
All renewable energy devices are taxed at 12% GST. 12% GST will be applicable on 70% of the total contract value and 18% on the remaining 30% value. So, we can say that tax incidence on goods is at 12% and services are at 18%. All the renewable energy devices covered under Chapter 84, Chapter 85 and Chapter 94 are charged at 12% GST. The project includes erection, procurement, and commissioning of a solar generating system, it will fall under ‘Works Contract Services’.

Capital Subsidy

Central Financial Assistance (CFA)/Subsidy is provided to the residential electricity consumers. The Ministry of New and Renewable Energy (MNRE) offers capital subsidies for residential rooftop solar installations. These subsidies can cover up to 30% of the installation cost, varying by state and project size. Read more

FCase Study

A company invests INR 1 crore in a solar power system. Under the accelerated depreciation scheme, it can depreciate 40% of the asset value in the first year, amounting to INR 40 lakhs. If the company is in the 30% tax bracket, it saves INR 12 lakhs in taxes for that year alone, significantly enhancing the financial viability of the solar project.

If a household plans to install a solar system costing INR 2 lakhs, a 30% subsidy would reduce the upfront cost by INR 60,000, bringing the effective cost down to INR 1.4 lakhs. This significant reduction in initial expenditure makes solar power accessible to a broader segment of the population.

Consider a middle-class family in Maharashtra, a state with a well-defined solar policy and substantial sunlight throughout the year. The family decides to install a 5 kW rooftop solar system costing INR 3 lakhs. Here’s how the financials could work out:
Capital Subsidy: INR 90,000 (30% of 3 lakhs)
Net Cost after Subsidy: INR 2.1 lakhs
Annual Electricity Savings: INR 60,000
Payback Period: Approximately 3.5 years

In addition to these savings, the family benefits from net metering, further reducing their electricity bills. Over the 25-year lifespan of the system, the cumulative savings can be substantial, making solar power a highly lucrative investment.

Conclusion

Investing in a home solar system is a smart financial decision that can save you money on your energy bills, increase the value of your property, and even generate income through various incentives and programs. With the right setup, a solar system can pay for itself within a few years and continue to provide financial benefits for decades to come. Whether you're looking to reduce your monthly expenses, earn extra income, or make a positive environmental impact, solar power offers a compelling solution for homeowners.

Sanjib Roy
https://www.linkedin.com/in/ist-aevt/