This guide is for business owners and accountants checking how accelerated depreciation on a solar plant works and who can claim it.
What accelerated depreciation means for solar
Accelerated depreciation lets a business write off most of a solar power system's cost against its taxable profit in the first year or two, instead of spreading the deduction over many years like ordinary office equipment. It is a tax deduction, not a cash payment, and it only helps a business that has taxable profit to set it against.
This is separate from the residential PM Surya Ghar subsidy. A household on PM Surya Ghar receives central financial assistance credited to a bank account. A business claiming depreciation instead reduces the profit it pays tax on, so the actual benefit depends on the business's tax rate and how much profit it has that year.
The 40% rate and how the WDV method works
The Income Tax Rules, 1962, list solar power-based systems under "renewable energy saving devices" in Appendix I, Part A, Serial 8, with a depreciation rate of 40 percent a year under the written down value, or WDV, method. WDV means the rate applies to the balance left after each year's deduction, not to the original price every year.
| Year | Opening WDV | Depreciation at 40% | Closing WDV |
|---|---|---|---|
| 1 | ₹50,00,000 | ₹20,00,000 | ₹30,00,000 |
| 2 | ₹30,00,000 | ₹12,00,000 | ₹18,00,000 |
| 3 | ₹18,00,000 | ₹7,20,000 | ₹10,80,000 |
| 4 | ₹10,80,000 | ₹4,32,000 | ₹6,48,000 |
On a ₹50 lakh plant commissioned in full, this table shows about 87 percent of the cost already deducted by the end of year four. The tax saved in any year equals the depreciation claimed multiplied by the business's applicable tax rate, not the depreciation amount itself. Use our depreciation calculator for your own asset cost, tax rate and subsidy amount.
Who can actually claim it
Only a business or professional with taxable income can use this deduction. A residential household on PM Surya Ghar cannot claim it, because depreciation applies against business profit, not a personal electricity bill.
The business must own the solar plant and use it for its own business. If a RESCO, a renewable energy service company, owns the plant instead and sells the business power under a power purchase agreement, the RESCO claims the depreciation, not the client business. A business hosting a RESCO plant should not expect this benefit for itself. Check the ownership structure before assuming it applies.
The 180-day rule changes the first-year amount
The full 40 percent rate applies only when the plant is put to use for 180 days or more in that financial year. In practice this means commissioning before October 1. Commission after October 1 and the first-year rate is halved to 20 percent under the general half-year rule in Section 32 of the Income Tax Act, 1961.
What changes under the Income-tax Act, 2025
The Income-tax Act, 2025, replaces the 1961 Act from financial year 2026-27 and reorganises many depreciation provisions into new sections and schedules. Early guidance suggests the same 40 percent renewable energy rate carries over, but the section numbers differ from the 1961 Act, and government guidance on some transitional details was still developing at the time of this review. Confirm the exact provision that applies to your filing year with a chartered accountant or the current CBDT notification before relying on this for a return filed after the new Act takes effect.
How a business actually claims it
Keep the purchase invoice, the installation and commissioning certificate with a clear date, proof the asset is used for business, and the prior-year written down value record if this is a continuing claim rather than a new one. The claim is filed through the depreciation schedule in the business's income tax return, normally prepared by a chartered accountant, with supporting annexures where a tax audit applies.
Depreciation is calculated on a block of assets, not one machine at a time. All plant in the same rate block, 40 percent here, is tracked together, and selling one asset in the block reduces the block's opening value for the next year rather than closing out that asset alone.
An additional 20 percent depreciation under Section 32(1)(iia) can apply to eligible manufacturing companies acquiring and installing new plant and machinery, which can include solar assets used in manufacturing. Conditions and sunset dates for this additional allowance have changed periodically, so check current eligibility with a tax professional rather than assuming it applies.
Common mistakes to avoid
- Assuming a residential rooftop owner can claim this. Only a business with taxable profit can.
- Letting commissioning slip past September 30 and losing half the first-year deduction without realising it.
- Claiming depreciation on a RESCO-owned plant that the business does not actually own.
- Forgetting that a government subsidy tied to the asset's cost must be deducted from the depreciable base first, under Explanation 10 to Section 43(1), before applying the 40 percent rate.
- Treating the deduction as immediate cash instead of a reduction in taxable profit that only helps if the business has profit to shelter.
Common questions
Can a homeowner claim accelerated depreciation on rooftop solar?
No. Depreciation is a business tax deduction claimed against taxable profit. A residential household should look at the separate PM Surya Ghar central subsidy instead, which pays central assistance directly rather than reducing tax.
Does accelerated depreciation lower the price a vendor quotes?
No. It does not change the purchase price or a vendor quote. It reduces the taxable profit of the business when the tax return is filed, so the benefit shows up in the tax outcome of the business, not at the point of sale.
Does a subsidy reduce how much a business can depreciate?
Yes. Under Explanation 10 to Section 43(1) of the Income Tax Act, a government grant or subsidy directly related to the cost of an asset must be deducted from its actual cost before depreciation is calculated. Base the 40 percent calculation on the cost after subtracting any such subsidy, not the gross invoice price.
What happens if the business sells the solar plant before it is fully depreciated?
Because depreciation is tracked on a block of assets rather than per machine, sale proceeds reduce the opening value of the block for the following year. Depending on the remaining value of the block after the sale, this can also trigger a separate tax treatment. This calculation needs a chartered accountant familiar with the full asset block of the business.
Is this the same as a tax holiday under Section 80-IA?
No. Section 80-IA and similar provisions offer a separate, profit-linked deduction for certain power generation undertakings, with their own conditions and eligibility years. It is a narrower incentive than general accelerated depreciation and applies to specific business structures. Check both separately with a tax professional.
Do I need a chartered accountant to claim this?
In practice, yes for anything beyond the simplest case. Correct treatment requires classifying the asset in the right block, applying the 180-day test, adjusting for any subsidy under Explanation 10, and tracking the transition to the Income-tax Act, 2025 correctly for filings from FY 2026-27 onward.
Official sources
Rules and portal processes can change. Check these sources before committing money.
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