Accelerated depreciation on solar: what the 40% actually means
Section 32 of the Income Tax Act allows eligible businesses 40% first-year depreciation on solar assets. What that means, and the 180-day rule that catches people out.
- Under Section 32 of the Income Tax Act, 1961, solar power generating assets attract a 40% rate of depreciation on the written-down value method.
- The full first-year rate applies only if the asset is put to use for 180 days or more in that financial year — otherwise the first-year claim is halved.
- This makes the commissioning date a genuine financial variable, not just a scheduling one.
- It only helps if your business has taxable profit to set it against — which is why it belongs in a conversation with your tax advisor, not in an advertisement.
- It is a timing benefit on an asset you bought. It is not a subsidy, a cash grant, or a guarantee of savings.
Of all the numbers in Indian commercial solar, this is the one we're comfortable putting in writing — because it comes from statute rather than a spreadsheet.
The provision
Under Section 32 of the Income Tax Act, 1961, read with the depreciation schedule in the Income Tax Rules, solar power generating assets attract a 40% rate of depreciation, computed on the written-down value method. For an eligible business buying a solar system, that means a substantial share of the asset's value can be written off in the first year.
The 180-day rule — the part people miss
The full first-year rate applies only if the asset is put to use for 180 days or more in that financial year. Commission the plant later than that, and the first-year claim is halved, with the balance carrying into the following year.
In practice this makes commissioning date a genuine financial variable, not just a project-management one. A plant energised in September and a plant energised in November can have materially different first-year tax outcomes — which is worth knowing before you set a schedule.
Accelerated depreciation is one of the main reasons owning the asset can beat buying the power. It only helps, though, if your business has taxable profit to set it against — which is exactly the kind of thing to check with your tax advisor before it's assumed in anybody's proposal.
What this is not
It is not a subsidy, not a cash grant, and not a guarantee of savings. It's a timing benefit in how you recognise the cost of an asset you bought. Anyone presenting it as free money is doing you a disservice.
Section 32, Income Tax Act, 1961; written-down value method. A reduced first-year rate applies where the plant operates fewer than 180 days in the commissioning year. Availability and benefit depend entirely on your own tax position — subject to eligibility, consult your tax advisor. This article is general information, not tax advice.
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