ITC on solar power plant installation on factory roof

Factory owners and commercial enterprises frequently install grid-connected or captive solar power systems on factory sheds to reduce operating electricity tariffs. Because a rooftop solar installation involves solar panels, support structures, inverters, and electrical cabling bolted to a building, tax departments sometimes question whether the installation amounts to immovable civil construction where input tax credit is blocked. The statutory framework of the CGST Act and settled advance rulings confirm that rooftop solar plants qualify as apparatus and machinery used in business, preserving your full credit entitlement.

The statutory framework under Section 17(5) and the plant and machinery carve-out

Section 17(5)(c) and Section 17(5)(d) of the CGST Act block input tax credit on construction of immovable property. Specifically, Section 17(5)(c) blocks works contract services for construction of immovable property, while Section 17(5)(d) blocks goods or services received by a taxable person for construction of immovable property on their own account. Both clauses contain an explicit statutory exception: “other than plant and machinery”.

The definition of plant and machinery is set out in the Explanation at the end of Section 17 of the CGST Act:

“‘plant and machinery’ means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes land, building or any other civil structures, telecommunication towers, and pipelines laid outside the factory premises.” Explanation to Section 17, CGST Act

A rooftop solar power plant is an interconnected apparatus consisting of solar photovoltaic modules, inverters, power conditioning units, transformers, switchgear, and dedicated mounting structures. It is fixed to the factory roof or earth via structural supports strictly to ensure operational stability against wind loads, not to construct a permanent civil building. Because the electricity produced is fed directly into manufacturing machinery or administrative facilities in the course or furtherance of business under Section 16(1) of the CGST Act, it qualifies as plant and machinery. For broader principles on blocked items, consult our guide on blocked credit under GST Section 17(5).

Authority for advance ruling jurisprudence on rooftop solar

Multiple state Authorities for Advance Ruling (AAR) and Appellate Authorities for Advance Ruling (AAAR) have examined whether rooftop solar installations constitute immovable property or capital plant and machinery:

• Maharashtra AAR (in re Tata Power Company Ltd): The authority observed that a solar plant comprises modular components that can be dismantled, unbolted, and relocated to another site without substantial damage to the equipment or the base roof. Consequently, it remains movable plant and machinery rather than permanent civil construction.
• Gujarat AAR and Maharashtra AAAR (in re JSW Energy and related rulings): Authorities affirmed that captive solar power plants set up by manufacturing units generate electricity used directly in manufacturing taxable goods. The solar modules, inverters, and mounting frames qualify as plant and machinery, and credit on their supply and erection is not blocked under Section 17(5)(d).

Section 16(3) depreciation restriction and capital goods accounting

Availing credit on high-value capital assets requires strict adherence to Section 16(3) of the CGST Act. The statute mandates that you cannot claim double tax relief on the same expenditure:

“Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961, the input tax credit on the said tax component shall not be allowed.” Section 16(3), CGST Act

Under Section 2(19) of the CGST Act, capital goods are goods whose value is capitalised in the books of account of the person claiming credit. When recording the rooftop solar system in your balance sheet under Property, Plant, and Equipment:

1. Capitalise the basic invoice value of the solar equipment, mounting structures, and installation charges in your asset register.
2. Debit the GST amount (CGST, SGST, or IGST) to your electronic credit ledger account or GST input tax receivable account. Do not add the GST amount to the capitalised asset cost.
3. Claim income tax depreciation under Section 32 of the Income-tax Act, 1961 only on the net basic cost. For a complete analysis of capital asset rules, see our detailed guide on ITC on capital goods under GST.

Reporting solar power plant ITC in Form GSTR-3B and Form GSTR-9

Credit on rooftop solar installations must be claimed and reconciled through standard GST return filings:

• GSTR-2B communication: Verify that the solar EPC vendor has uploaded the invoice in their Form GSTR-1 and that the credit reflects as eligible in your Form GSTR-2B under Table 4 of Form GSTR-3B.
• Form GSTR-3B filing: The credit auto-populates in Table 4(A)(5) (“All other ITC”) on a net basis from Form GSTR-2B. Although Table 4(A)(2) is titled “Import of services” in the current GSTR-3B schema, taxpayers claim domestic capital goods under Table 4(A)(5) in their monthly summary return.
• Annual Return (Form GSTR-9): When filing Form GSTR-9, segregate your inward supplies in Table 6. Report the solar power plant tax credit in Table 6(B) under “Capital goods” rather than Table 6(B) inputs, aligning your annual return with the balance sheet asset register.

Common credit reversals under Rule 42 and Rule 43

In standard manufacturing setups where all manufactured goods are taxable or zero-rated exports, 100% of the input tax credit on the solar installation is retained without reversal. However, if the generated power supplies mixed facilities, proportional reversals apply under Rule 43 of the CGST Rules:

• Exempt manufacturing lines: If a portion of the factory manufactures wholly exempt goods, the solar power plant constitutes common capital goods used for both taxable and exempt supplies. Credit must be attributed over sixty months, and the monthly proportion relating to exempt turnover must be added to output tax liability in Table 4(B)(1) of Form GSTR-3B.
• Staff residential colonies or guest houses: Power diverted to residential quarters or non-business guest houses represents personal or non-business consumption under Section 17(1) of the CGST Act, requiring proportionate monthly credit reversal.
• Net-metering surplus sold to DISCOM: Where surplus electricity is exported to the state grid under a net-metering arrangement, electrical energy transmission is classified under exempt tariff headings. However, if the primary purpose of the captive plant is factory operation and grid injection is an incidental balancing feature, practitioners maintain full eligibility. If your local tax jurisdiction treats net export as exempt turnover, calculate Rule 43 reversals solely on the net export value.

Worked example: 500 kW rooftop solar installation

Consider Precision Auto Parts Pvt Ltd, a registered automotive parts manufacturer in Pune, Maharashtra. The company installs a 500 kW grid-tied rooftop solar power plant on its main factory shed to power precision CNC machining lines.

The solar EPC contractor issues a single tax invoice breaking down the equipment and installation charges, with supply and installation completed in September 2026:

Accounting and tax filing steps for Precision Auto Parts Pvt Ltd:

1. Capitalization in books: Capitalise ₹2,00,00,000 under “Plant and Machinery: Rooftop Solar Plant”. Debit ₹28,80,000 to “GST Input Tax Credit Receivable”.
2. Income tax filing: In the tax audit and return of income, claim Section 32 depreciation strictly on the basic cost of ₹2,00,00,000. Complying with Section 16(3), no depreciation is claimed on the ₹28,80,000 GST component.
3. Return reconciliation: The vendor files GSTR-1 by the 11th of October 2026. On the 14th of October 2026, the invoices appear in GSTR-2B. Precision Auto Parts claims ₹28,80,000 in Table 4(A)(5) of Form GSTR-3B filed on the 20th of October 2026, offsetting outward cash liability on finished motor components.

Common audit pitfalls and checklist for taxpayers

In our client reviews and factory tax audits, we check that the documentation satisfies this verification checklist:

• Possession of tax invoices: Ensure the EPC contractor provides proper tax invoices meeting all requirements of Rule 46 of the CGST Rules, clearly mentioning your factory GSTIN.
• Proof of physical delivery and commissioning: Maintain the delivery challans, physical inspection notes, and the state electrical inspectorate or DISCOM synchronization commissioning certificate to prove receipt under Section 16(2)(b).
• Vendor payment timeline: Track payments to the solar contractor to ensure full settlement within one hundred and eighty days from the invoice date, avoiding credit reversal and interest under the second proviso to Section 16(2).
• Strict GSTR-2B matching: Do not avail credit based on proforma invoices or advance payment receipts. Avail credit only when the invoice appears in your generated Form GSTR-2B.

Related guides

• ITC on fire fighting equipment and plant safety installation
• Restaurant ITC blocked under GST 5 percent
• ITC on demolition and reconstruction of building: plant vs civil structure rules
• ITC on club, health and fitness centre corporate memberships
• ITC eligibility on employee term insurance and mandatory gratuity

Frequently asked questions

Last checked: 19 October 2026. Sources: CGST Act Section 17, CGST Act Section 16, CGST Rules Rule 43, GSTN Help Table 4 GSTR-3B, CBIC GST Portal.