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From residences to industries, solar power is fueling the country’s energy needs in all spheres. The country has witnessed significant growth in its renewable energy capacity, especially in solar power, as it strives toward achieving self-reliance and sustainability. As of January 2025, India’s non-fossil fuel energy capacity has reached 217.62 GW, with solar power playing a dominant role.
The government’s efforts, including the National Solar Mission, have led to an exponential rise in solar energy installations, from just 9.01 GW in 2016 to 97.86 GW in 2025. This surge in solar installations is being further amplified by initiatives like PM-KUSUM, PM Surya Ghar Muft Bijli Yojana, and the Solar Rooftop Yojana, making solar adoption more accessible and affordable across the country.
One of the driving factors behind this rapid growth is accelerated depreciation on solar panels. This method not only offers tax savings but also makes the adoption of solar energy more financially attractive for businesses. In this blog, we’ll take a deep dive into solar panel depreciation rates, how accelerated depreciation works for solar projects, and why it’s beneficial for commercial buyers in India.
Accelerated depreciation is a tax incentive that allows businesses to depreciate solar panels at a faster rate than the standard depreciation method. In simpler terms, it enables businesses to deduct a higher percentage of the cost of an asset in the earlier years of its use. The solar panel depreciation rate in India, for example, allows businesses to claim a significant deduction on the purchase of solar plants during the first year of installation, thus reducing their taxable income considerably.
The goal of accelerated depreciation for solar power plants method is to encourage investments in capital assets like solar energy systems by providing immediate tax relief. This is especially useful for capital-intensive projects such as solar power plants, where the initial investment can be substantial.
Accelerated depreciation on solar panels is governed by Section 32 of the Income-tax Act, 1961. According to this provision, businesses can depreciate their solar power system at a much faster rate than other assets.
Under the solar depreciation rate guidelines:
* Businesses can claim 40% solar power depreciation rate in the first year of operation.
* An additional 20% depreciation can be claimed in the second year, making it a total of 60% depreciation in the first two years.
This allows businesses to recover a large portion of their solar investment quickly, providing them with substantial tax relief in the initial years of the asset’s life.
Businesses can choose between two depreciation methods: the Straight-Line Method (SLM) and the Written Down Value (WDV) method.
According to Section 32(1) of the Income-tax Act, depreciation is allowed on the WDV of an asset, which is determined by the actual cost incurred for the asset. For assets acquired in the current year, the WDV is equal to the actual cost. For assets purchased in prior years, WDV is calculated by subtracting the depreciation already allowed in earlier years from the original cost.
The first step in calculating solar plant depreciation under the WDV method is determining the initial cost, which includes capital expenses like the purchase of inverters, solar panels, mounting structures, installation costs, and land acquisition. Next, subtract any government incentives, grants, or subsidies from this initial cost to arrive at the depreciable value, which is the amount that will be used to calculate the depreciation.
To calculate the annual depreciation under the WDV method, the formula is:
Annual depreciation = (Opening WDV * Depreciation rate) / 100
In the first year, the opening WDV will be the initial cost. For subsequent years, the opening WDV will be the closing WDV from the previous year, which is determined by subtracting the depreciation of the previous year from the opening WDV.
For example, if the initial cost of the solar plant is ₹1,000,000 and the depreciation rate is 40%, the depreciation for the first year will be:
Depreciation year 1 = (1,000,000 * 40%) = ₹4,00,000
In the second year, the WDV will be ₹6,00,000 (₹10,00,000 - ₹4,00,000), and the depreciation will be calculated again using the same formula based on the new WDV.
The straight-line method, another common depreciation method, calculates depreciation by subtracting subsidies from the initial cost and applying a fixed depreciation rate over the asset’s useful life. For example, if the solar plant’s initial cost is ₹10,00,000, with a depreciation rate of 40%, the annual depreciation under the straight-line method would be:
Annual depreciation = (10,00,000 * 40%) = ₹4,00,000
However, the WDV method is more beneficial for calculating solar power depreciation rate as it allows for faster tax deductions in the early years, improving cash flow and providing a strong incentive for businesses to invest in renewable energy. Over the plant's lifespan, accumulated depreciation can be deducted from taxable income, reducing the overall tax liability of the business. This financial advantage encourages more developers and investors to adopt solar technology, further supporting the growth of renewable energy in India.
Accelerated depreciation on solar panels is available to businesses, industries, and commercial establishments that invest in solar power generation systems. Solar energy companies, manufacturers, and even individuals involved in commercial production can claim these benefits. The solar system govt subsidy further supports such claims, making the overall investment in solar energy more affordable. With solar power depreciation rates being business-friendly, this green energy source is a boost to both environment and profits.
The advantages of accelerated depreciation on solar panels are many for businesses looking to invest in solar energy systems. Here are the key benefits:
The most significant benefit of accelerated depreciation is the tax relief it offers. By allowing businesses to claim depreciation on solar panels at a faster rate, they can reduce their taxable income substantially in the first few years of operation. This results in lower income tax liabilities, helping companies save money early on. For instance, a company investing ₹1,00,00,000 in a solar power system can claim 40% depreciation (₹40,00,000) in the first year, directly reducing their taxable income.
With solar panel depreciation rates allowing businesses to reduce their tax liabilities, they free up cash flow that can be reinvested into other areas of the business. This is especially beneficial for companies with high initial investments or industries looking to expand rapidly.
Since businesses can deduct a significant portion of the cost in the initial years, accelerated depreciation allows them to recover their investment much faster. This helps reduce the payback period of solar installations, making it an attractive financial proposition for businesses.
As solar energy investments become more financially viable, businesses are more likely to reinvest the savings from accelerated depreciation into additional capital assets. This can lead to further growth, innovation, and expansion.
Over time, the accelerated depreciation approach helps businesses reduce their long-term operating costs. This is particularly useful for maintaining solar systems, as the financial relief from accelerated depreciation can offset the long-term costs of running a solar power plant.
While accelerated depreciation offers many advantages, there are a few things you should consider before claiming it for your solar power system:
There are certain limits on how much can be depreciated in a single year, so it's important to be aware of the specific regulations outlined by the government.
To qualify for accelerated depreciation, the solar power system must be used for commercial purposes or for business-related activities.
Although accelerated depreciation provides tax relief early on, it will result in smaller depreciation deductions in the later years.
The solar plant depreciation rate helps businesses offset the high upfront costs of solar installations. It accelerates the tax-saving process, making solar adoption more financially viable for companies. With these savings, businesses can reinvest in future growth or reduce their financial burden.
For commercial buyers, accelerated depreciation has proven to be a game-changer in making solar power systems more affordable. Here’s how:
Commercial buyers can benefit from substantial tax deductions in the early years of their solar system’s operation through the pocket-friendly solar panel depreciation rate, improving their cash flow.
By reducing the initial tax liability, businesses can redirect the savings into future projects, such as upgrading equipment or expanding operations.
With the solar system depreciation rate making solar investments more profitable, commercial buyers are encouraged to invest in more solar projects, further driving the growth of India’s renewable energy market.
Tata Power is a trusted partner for businesses and individuals looking to leverage solar power depreciation to boost their sustainability efforts. The company offers comprehensive assistance throughout every step of the solar journey—from consultation to installation and long-term maintenance.
With decades of expertise and cutting-edge technology, Tata Power delivers tailored solar solutions to meet the unique energy needs of every client. Whether you're a small business or a large enterprise, Tata Power can help you maximize the benefits of solar power depreciation, ensuring that your solar investment is financially sound and sustainable.
Tata Power ensures safety at every stage, from product design to installation, so you can trust that your solar system is in safe hands.
With years of experience and technological advancements, Tata Power ensures the highest quality and performance standards for every solar installation.
Tata Power provides customized solutions that optimize energy output, helping you save on energy costs and reduce your carbon footprint.
Tata Power remains at the forefront of the solar industry, leveraging the latest advancements to deliver cutting-edge, sustainable energy solutions.
If you’re considering investing in solar energy and want to know how solar depreciation rates can benefit your business, reach out to Tata Power today for a consultation. Our experts will guide you through the entire process, ensuring that you get the most out of your solar investment.
India's commitment to renewable energy is clear, and solar power plays a pivotal role in this transformation. Accelerated depreciation on solar panels helps commercial and industrial buyers take full advantage of the financial benefits of solar energy. By reducing tax liabilities, improving cash flow, and enhancing ROI, accelerated depreciation makes solar energy a financially viable option for businesses. With companies like Tata Power offering comprehensive solar solutions, now is the perfect time to invest in solar energy and take advantage of the tax benefits.
Ready to navigate the solar panel depreciation rate and maximize your savings? Contact us today!
1. Accelerated Depreciation
2. Understanding Accelerated Depreciation of Solar Power Assets in India
3. What is the Solar Plant Depreciation Rate in India in 2023: A Comprehensive Guide
4. Accelerated Depreciation Benefit-- A major incentive for solar power
5. Advancing Renewable Energy and Sustainability through Key Government Initiatives
6. India’s Renewable Energy Revolution: 2024 Achievements & 2025 Roadmap
7. How Accelerated Deprecation of Solar Power Plants helps commercial buyers
The depreciation period for solar panels in India is typically 25 years, as these assets have a long useful life.
Standard depreciation spreads the depreciation deduction equally over the useful life of an asset, reducing taxable income in smaller, consistent amounts each year. Accelerated depreciation, on the other hand, allows for a larger depreciation deduction in the earlier years of the asset’s life, reducing taxable income more quickly and providing immediate tax relief.
Accelerated depreciation is available on solar energy systems, including solar panels, inverters, and related infrastructure such as mounting structures, wiring, and installation costs. These assets are eligible for depreciation under the Income-tax Act if they are used for commercial purposes and meet the criteria set for renewable energy investments.
As per the Income Tax Act, businesses can claim accelerated depreciation on solar assets at a rate of 40% in the first year. Additionally, there is an option to claim extra depreciation of 20% in the year the asset is put to use. This allows businesses to reduce their taxable income substantially in the early years of the asset's life.
Yes, solar panels are eligible for bonus depreciation, which is a part of the accelerated depreciation method. Under the Income Tax Act, businesses can claim an additional 20% depreciation on the capital expenditure (capex) incurred for solar projects, further reducing the tax burden in the initial years. This bonus depreciation is designed to encourage the adoption of renewable energy technologies like solar power.
Under the Companies Act 2013, the depreciation rate for solar panels is generally 5% per annum using the Straight-Line Method (SLM). This is lower than the depreciation rate allowed for tax purposes under the Income-tax Act, which allows for higher depreciation rates through accelerated depreciation.
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