Accelerated Depreciation & Tax Benefits on Commercial Solar in India, Explained

If you own the solar plant on your factory roof, the tax code lets you treat a large slice of its cost as an expense very early in the asset's life, and that timing, more than any headline rate, is what quietly improves the economics of going solar. This piece explains, plainly, how accelerated depreciation and the associated tax benefits work for commercial and industrial (C&I) solar in India: the 40% + 20% first-year mechanics, the 180-day rule that ties the benefit to your commissioning date, and the big caveat that the concessional 22% corporate-tax regime changes the picture entirely.

One thing up front, and we'll repeat it, because it genuinely matters: this is general educational information, not tax, financial or investment advice. How depreciation actually lands on your books depends on your entity type, the tax regime your company has opted into, and the prevailing Finance Act, all of which change from year to year. Nothing here should be built into a business case until your chartered accountant or tax advisor has confirmed it for your specific situation. We would far rather you under-count a benefit than bank on one that turns out not to apply to you.

What accelerated depreciation means

Depreciation is a non-cash expense that lowers your taxable profit, and "accelerated" simply means you are allowed to write off a large share of the asset's cost early rather than spreading it evenly over many years. Solar power generating equipment sits in a high-rate depreciation block under the Income Tax Rules, so a big chunk of the deduction is front-loaded into the first year or two.

The important thing to understand is that this is a matter of timing, not free money. You are bringing forward deductions you would eventually receive anyway; the value comes from taking them sooner, because a rupee of tax saved today is worth more than the same rupee saved five years from now. For a profitable company paying tax, that early shield can meaningfully reduce the effective, after-tax cost of the plant, which is why depreciation belongs in the conversation alongside the raw turnkey cost of the plant, not instead of it.

The 40% + 20% mechanics

Under current rules, solar and other renewable-energy power-generating devices attract depreciation at 40% on a written-down-value (WDV) basis, and an eligible manufacturer can claim a further, one-time additional depreciation of 20% on new plant and machinery, so a qualifying company can write off up to roughly 60% of the asset's cost in the very first year.

A few details are worth getting right, because the internet is full of outdated numbers:

• The 40% rate was reduced from an older 80% rate, with effect from FY 2017–18. If you still see "80% accelerated depreciation on solar" quoted somewhere, treat it as stale: the block rate for these assets is 40% now.
• WDV means the deduction tapers. Year one is 40% of the cost; year two is 40% of the remaining written-down value; and so on. The bulk of the shield is early, then it thins out over the following years: it never fully finishes, it just gets small.
• The extra 20% is separate and one-time. Additional depreciation under section 32(1)(iia) is 20% of the actual cost (not the WDV) of new plant and machinery, available to assessees engaged in manufacturing or the generation of power, and it is claimed once, in the year the asset is first put to use. It does not recur in later years.

So for a qualifying manufacturer, year one can combine base depreciation (40% of cost) with additional depreciation (20% of cost) to reach about 60% of the asset written off, while the remaining ~40% continues to depreciate at 40% WDV in later years. Whether the +20% is actually available to you is the crux of the matter, and it depends heavily on which tax regime your company is in, which we come to below.

The 180-day rule

If the plant is put to use for less than 180 days in the financial year it is commissioned, you can claim only half the depreciation that year, with the balance rolling into the following year, so your commissioning date directly affects when the benefit lands, not just how much.

In practice, that means a plant switched on late in the financial year (giving it fewer than 180 days of use before 31 March) would attract half of 40%, i.e. 20% base depreciation that year, plus half of any additional depreciation (10% instead of 20%). The unclaimed halves are not lost: they are simply allowed in the next year. It is a timing shift, but for a plant of any size the difference in year-one cash-flow can be substantial.

The sensible takeaway is not to rush engineering or safety just to chase a calendar date. It is simply to be aware that commissioning timing has a tax dimension, and to plan the programme with your CA's input if the year-one shield matters to your business case. Getting the plant built right (see our rooftop economics guide) always comes first.

The 22% regime catch

This is the nuance that catches most people out: if your company has opted for the concessional 22% corporate-tax regime under section 115BAA (or the 15% new-manufacturing regime under 115BAB), it forfeits the additional 20% depreciation and several other incentives. So whether the +20% is even on the table depends entirely on the regime the company sits in.

Here is the trade-off in plain terms. Companies that move to 115BAA/115BAB accept a lower flat tax rate but give up things like additional depreciation under 32(1)(iia), MAT credit and various deductions. Ordinary (base) depreciation on the solar block generally still applies under the concessional regime: it is specifically the extra 20% that is surrendered. Meanwhile, a company still on the older regime at around 30% (plus surcharge and cess) is applying its deductions against a higher rate, so each rupee of depreciation shields more tax there than it would at 22%.

None of this means the older regime is automatically better: the concessional regime may well be the right overall choice for a company for reasons that have nothing to do with solar, and the election under 115BAA is generally irreversible once made. It simply means the depreciation benefit cannot be read off a brochure. The single most useful thing you can do is confirm with your CA which regime your company has actually opted into, because that one fact reshapes the entire calculation.

The same plant, at the same cost, can deliver a very different tax outcome depending only on which tax regime the company happens to sit in.

An illustrative worked example

Take a ₹2 crore, 500 kWp CAPEX plant purely as an illustration, not a promise, and definitely not your numbers. We are showing the arithmetic only so the mechanics feel concrete; every figure below is indicative and rests on assumptions that must be checked for your case.

Working through the year-one write-off on that assumed ₹2 crore asset:

• Base depreciation at 40% ≈ ₹80 lakh indicative.
• Additional depreciation at 20%, only if the company is an eligible manufacturer and on a regime that permits it ≈ ₹40 lakh indicative.
• Total year-one write-off ≈ ₹1.2 crore, i.e. about 60% of the asset.
• Resulting tax saving, at an assumed older-regime rate of ~30%: 30% × ₹1.2 crore ≈ ₹36 lakh in year one indicative.

The rate and the eligibility are both assumptions here, not facts about your business. Drop the +20% (say the company is on the 22% regime), or apply a different tax rate, or trip the 180-day rule by commissioning late, and that ₹36 lakh moves, sometimes a lot. That is exactly why it stays illustrative until your CA runs it against your actual regime and profit position.

The point of the picture is modest but real: the depreciation shield reduces the effective, after-tax cost of the plant and shortens payback, complementing the CAPEX ownership model rather than replacing the sticker price. You still fund the full ₹2 crore; the benefit arrives later, through lower tax. To see how that sticker price is built up in the first place, start with our plant cost bands for Tamil Nadu or run a first-cut estimate in the savings calculator.

Beyond depreciation: GST & CAPEX

Depreciation is only one part of the tax-and-cost picture, and two honest caveats round it out. First, GST applies to solar equipment, and the rate has been revised more than once over the years, so rather than quote a number that may already be stale, treat it as something to verify. Confirm the current GST rate and exactly how it is treated in your capital cost before it goes into any model.

Second, and more fundamentally: depreciation benefits accrue only to whoever owns the asset. Under a CAPEX model you own the plant, so the depreciation shield is yours to claim. Under a RESCO or OPEX model, the developer owns the plant and claims the depreciation, while you simply buy the power at an agreed tariff: the tax benefit sits with the owner, not with you as the offtaker. So if the depreciation shield is central to your case, that is an argument for CAPEX ownership; if you would rather not deploy the capital, RESCO trades that benefit away in exchange for zero upfront cost. We unpack that choice in full in CAPEX vs RESCO vs Open Access, and you can compare the commercial models side by side.

Frequently asked questions

What is accelerated depreciation on solar in India?

Accelerated depreciation lets the owner of a solar plant write off a large share of the asset's cost early rather than spreading it evenly over many years. Solar power generating equipment sits in a high-rate depreciation block, so the deduction is front-loaded and the tax shield arrives sooner. It is a matter of timing, not extra money, and how it applies depends on your tax regime and the prevailing Finance Act, so confirm it with your chartered accountant.

Can a company claim 40% plus 20% depreciation on a solar plant?

Potentially. Solar and renewable power generating devices attract 40% depreciation on a written-down-value basis, and an eligible manufacturer can also claim a one-time additional depreciation of 20% on new plant and machinery under section 32(1)(iia) in the year it is first put to use, which can take the first-year write-off to about 60%. Eligibility depends on the nature of the business and the tax regime, so it must be verified with a tax advisor.

Does the 22% concessional tax regime allow accelerated depreciation?

No, a company that opts for the concessional 22% corporate-tax regime under section 115BAA (or the 15% new-manufacturing regime under 115BAB) forfeits the additional 20% depreciation and various other incentives. The base 40% depreciation on solar equipment generally still applies, but the extra 20% does not. Whether opting in is better overall is a company-specific calculation for your chartered accountant.

Who can claim depreciation, the factory or the RESCO provider?

Depreciation accrues to whoever owns the asset. Under a CAPEX model the factory owns the plant and claims the depreciation; under a RESCO or OPEX model the developer owns the plant and claims the depreciation while the factory simply buys the power. So the depreciation tax shield sits with the owner, not with the offtaker.