Introduction
As India ramps up its commitment to clean energy, green hydrogen and biofuels are becoming central to the energy transition. But setting up and operating in this sector comes with high initial investment and regulatory challenges. Fortunately, there are several tax and fiscal incentives designed to reduce costs, improve returns, and make clean fuel projects viable.
In this blog, we'll explore the key incentives, customs/ GST reliefs, depreciation benefits, and state/federal policies available now or expected soon—especially relevant for companies in Maharashtra and Kolhapur planning to enter or scale in green hydrogen & clean fuel businesses.
What are Green Hydrogen & Clean Fuels?
- Green Hydrogen is hydrogen produced from electrolysis powered by renewable energy (wind, solar), with minimal or zero carbon emissions.
- Clean Fuels / Biofuels refer to fuels produced from biomass, waste, or renewable biological sources (e.g. ethanol, biodiesel) or alternate energy carriers.
These require heavy capital investment (electrolysers, renewable power capacity), infrastructure, and compliance with environmental & policy norms.
Central & Mission-Level Incentives
India has launched several programs & policies to promote green hydrogen and clean fuels:
-
National Green Hydrogen Mission (NGHM): A major policy push with incentives for production, usage, manufacturing of related equipment. Under this mission:
• Waiver of interstate transmission charges (ISTS) for green hydrogen / ammonia plants using renewable energy. (National Green Hydrogen Mission)
• Simplified clearances and favorable taxation via single-window mechanisms. (National Green Hydrogen Mission) -
Strategic Interventions for Green Hydrogen Transition (SIGHT) Program: This includes:
• Incentives for electrolyser manufacturing. (Mondaq)
• Production-linked incentives (PLI) or reverse bidding for hydrogen producers. (Mondaq) -
Financial Subsidies & Capital Expenditure Support:
• Capital subsidies for initial green hydrogen projects: e.g. first few plants could receive substantial subsidy per project. (Press Information Bureau)
• Provision of government / revenue lands at concessional lease rates for green hydrogen infrastructure. (Press Information Bureau) -
Interstate Transmission System (ISTS) Charge Waiver:
• For green hydrogen and green ammonia plants using RE power; charges waived for projects commissioned before certain deadlines. (National Green Hydrogen Mission)
Customs Duty & GST Exemptions
Tax/fiscal relief is also given through customs and GST policy:
- Customs Duty Exemptions / Reduction on imported equipment such as electrolysers, renewable energy modules, etc. for hydrogen & biofuel production. (Mondaq)
- GST Concessions / Exemptions on renewable energy components and related machinery. These reduce upfront cost burden. (Mondaq)
- Exemption from Module Manufacturer Lists / Domestic Manufacturer Lists for export-oriented green hydrogen projects from solar module shortlist, allowing import of modules that may be cheaper. (The Indian Express)
Accelerated Depreciation & Tax Deductions
To help recover capital costs faster, the following tax benefits exist or are expected:
- Accelerated Depreciation for machinery & equipment used in renewable energy / clean fuel projects (solar, wind, hydrogen). For example, solar plant machinery has enjoyed high depreciation rates (40% + additional) in early years. (CAclubindia)
- Section 80-IA equivalent benefits (Renewable Power Generation): Entities generating power from renewable sources can claim tax deduction/exemption on profits for set periods. While Green Hydrogen specifically may not yet have a fully dedicated “80-IA for hydrogen” statute, similar renewable generation rules apply. (CAclubindia)
- State grants or incentives may include property tax/GST refunds on plant & machinery, or rebate of state transmission or electricity duty. (Moneycontrol)
State-Level Incentives: Examples from Maharashtra & Other States
Several states are aligning their policies to attract investment in green hydrogen / clean fuels:
- Maharashtra (and other states) are part of studies estimating large USD-billion level incentives via state policies on green hydrogen. (CEEW)
- Rajasthan, Odisha, Tamil Nadu offer special incentives like rebates in state transmission & distribution charges, waivers of certain duties/surcharges, priority in land allocation. (Moneycontrol)
- Local states also may offer SGST waivers or reimbursements for electricity consumed by green hydrogen production units. (National Green Hydrogen Mission)
What to Plan For: Risks & Expected Changes
While many incentives exist, businesses must also plan for:
- Sunset dates on subsidies and waivers: some benefits (e.g. transmission charge waivers) are valid only up to certain years (e.g. 2030). (National Green Hydrogen Mission)
- Compliance conditions: to get benefits, you may need to ensure minimum local value-addition, renewals, environmental clearances, etc.
- Policy shifts: Import duties / customs policy may change; states may revise their own rules.
- Cap on incentives: Capital subsidies or duty waivers might be limited per project or for first few units.
Case Study: Hypothetical Green Hydrogen Plant near Kolhapur
Here’s a simplified illustration to show how incentives might reduce cost:
| Parameter | Without Incentives | With Incentives (Customs Duty Waiver + Depreciation + State Rebates) |
|---|---|---|
| Cost of Electrolyser & Power Setup | ₹100 crores | Reduced by ~10-20% via customs/GST exemptions + subsidies |
| Depreciation Benefit (1st Year) | Standard rate (say 15-20%) | Accelerated depreciation (~40-60%) lowers taxable income early |
| Power Cost (RE supply + transmission) | Full transmission charges | If connected renewable power & waiver of ISTS, cost significantly lower |
| Lease / Land Cost | Market rate | Reduced lease from state or govt land for hydrogen projects |
Result: Project seems much more viable financially with incentives—better IRR, less payback time.
Compliance Checklist for Businesses
If setting up or investing in green hydrogen / clean fuel projects, ensure you:
- Obtain all requisite approvals from MNRE / central authority / state authority
- Ensure registration under relevant schemes (e.g. SIGHT, NGHM)
- Maintain documentation for customs / import of machinery so that equipment qualifies for exemptions
- Secure environmental clearances (unless exempt under mission rules)
- Claim depreciation properly in books & income tax returns
- File state taxes / SGST / electricity duty / land lease etc. under any waiver schemes
- Monitor policy timelines and expiry of incentives
FAQs
Q1. Are profits from green hydrogen production exempt from tax under Section 80-IA?
Currently, Section 80-IA applies to renewable power generation (solar, wind etc.). Green hydrogen is being encouraged through NGHM and related incentive schemes; a dedicated exemption under 80-IA for green hydrogen is expected but must be verified based on scheme notifications.
Q2. Can I get import duty exemption for electrolysers and solar modules used in hydrogen projects?
Yes. Under the SIGHT / NGHM framework, certain approvals allow duty reductions or exemptions on critical components. Also, export-oriented hydrogen projects may be exempt from domestic manufacturing shortlist restrictions. (Mondaq)
Q3. What depreciation rate can I claim for equipment in clean hydrogen projects?
Renewable energy machinery often qualifies for accelerated depreciation—rates as high as ~40%, plus additional depreciation. Always confirm with latest tax notifications. (CAclubindia)
Q4. How long are the incentives valid (transmission waiver, subsidies)?
It depends. Some benefits, like ISTS waivers, are tied to commissioning deadlines (e.g. before certain year) or for a fixed period (e.g. 25 years). Be aware of deadlines. (ORF Online)
Q5. Do state governments contribute additional incentives beyond central schemes?
Yes. States like Maharashtra, Rajasthan, Odisha etc. are offering rebates in transmission charges, SGST waivers, land allocation benefits and other local incentives. Check state policies. (CEEW)
Conclusion & Call to Action
Green hydrogen & clean fuel are not just buzzwords—they’re fast becoming strategic priorities for India. The government has rolled out incentives via NGHM, customs / GST exemptions, subsidies for electrolyser-manufacturing, and accelerated depreciation to make projects viable.
If you’re planning a clean energy project—whether in Kolhapur, Maharashtra, or elsewhere—it’s essential to structure your investment to take maximum advantage of these benefits.
Verotus Finlegal Solutions LLP specializes in helping businesses with clean energy tax planning, customs and duty structuring, incentive applications, and compliance monitoring.
👉 Contact us today for a free consultation to map out your clean fuel/green hydrogen project’s tax strategy.
