How can tax breaks promote sustainable living in India?

Meet Radha. She wasn’t always a ‘save-the-planet’ kind of person. Sure, she recycled religiously and carried her reusable tote around, but rising concerns about climate change spurred her to explore greener ways to reduce her environmental footprint. However, the cost and complexity of making eco-friendly changes for sustainable living sometimes felt like an uphill battle. That’s where Radha stumbled upon a surprising discovery – the Indian government offers tax incentives for individuals like her who choose eco-friendly practices!

Intrigued, Radha sets out to discover these tax breaks that can make sustainable living more accessible and affordable. Let’s join her on the journey.

Sunshine & savings: Solar tax incentives
 

Thinking of going solar? Great choice! Not only are you helping the planet by adopting sustainable living and reducing your electricity bills, but it also makes you eligible for incentives. While currently there’s no direct income tax rebate or deduction for residential solar installations, you can enjoy substantial indirect benefits and cost savings that contribute to a faster return on investment – 

• Direct and indirect tax cuts
 

You can stack up benefits with

• Lower sales tax (solar panels, inverters, and other components enjoy a reduced Goods and Services Tax (GST) rate of 5%)

• Safer prices due to sales tax safeguards

• Reduced excise duty

• Custom duty exceptions

It significantly reduces the upfront cost of the system.

Also read - Learn online ITR filing and how to pay income tax digitally

• Net metering

Generating more power than you use? Sell the excess back to the grid and earn credit for later – a win-win situation. Plus, some states offer incentives for banking those credits, turning your unused energy into future savings.

• Capital subsidies
 

The government offers capital subsidies to make going solar even more attractive in rural and urban areas with their SRISTI and SUABHAGYA Plans. According to the Ministry of New and Renewable Energy, the Central Government can cover up to 30% of the benchmarked installation cost for rooftop PV systems. These subsidies directly reduce the installation cost of your solar system.

Are you engaged in a business? Following are the solar tax incentives for you –

• Accelerated depreciation under the Income Tax Act
 

Solar plant machinery (operational for more than 180 days in a fiscal year) qualifies for a 40% first-year depreciation PLUS an additional 20% additional depreciation (under Section 32(1)(iia)). That means – up to a 60% depreciation in the year of installation. It enables you to write off a large chunk of your set-up costs early and lower your tax liability.

• Income tax exemption under Section 80IA
 

This section offers a 100% exemption from income tax for profits derived from setting up and managing a new solar power plant for ten years from the commencement date. That’s a decade of tax-free operation to fuel clean energy usage and sustainable living.

Electric vehicles: The road to greener savings

Opting for electric vehicles (EVs) aids your sustainable living cause by reducing the environmental impact of emissions. But you can reduce your taxable income just by choosing a cleaner commute. When you purchase an EV, you can avail of a tax incentive—a deduction of up to ₹ 1.5 lakhs on the interest component of your vehicle loan under Section 80EEB of the Act. 

But here’s a catch. To be eligible for this tax exemption, you, as an individual taxpayer, must take out a vehicle loan to purchase an electric vehicle from a registered financial institution or non-banking finance company.

Owning an EV gets even more attractive with these additional perks –

• Reduced GST rate of 5%, compared to traditional vehicles

• Exemption from paying a green tax, which is levied on vehicles registered after 15 years

• Exemption for issue and renewal charges for a registration certificate (RC)

• Exemption from motor vehicle tax and road tax in select states

Tax credits for investing in green bonds
 

Beyond individual choices, sustainable living can also extend to your investments. That’s where green bonds come in. Not only do they support renewable energy, clean water, and sustainable practices, but they also offer diversification to your portfolio. You can indirectly contribute to innovative, environmentally conscious projects that align with your values, all while reducing your tax liability.

The government of India incentivises green investing through Section 80 CCF of the Act. Under this section, you can deduct a portion of your investment in certain long-term green bonds from your taxable income.

Green bonds = sustainable living + income tax deduction = reduced tax liability.

Green building initiatives
 

Going green isn’t just good for the Earth; it's good for your wallet, too. Green building initiatives are changing how we construct and live, making our homes and workplaces both comfortable and resource-efficient. To accelerate this shift towards sustainable living, the Indian government put forward a bouquet of incentives for individuals and developers who choose green building practices.

First and foremost, tax benefits incentivise sustainable choices. Developers of the Leadership in Energy and Environmental Design (LEED)-certified buildings, a widely recognised global certification for green projects, can claim up to 100% depreciation on green features like solar panels, rainwater harvesting systems, and waste management systems.

Going green doesn’t just save you money on taxes, it also opens doors to –

• Low-interest loans through IREDA (Indian Renewable Energy Development Agency Limited) for green-certified projects

• Faster approval processes and expedited inspections for green buildings

• Reduced building fees for green-certified projects

• State-level subsidies and exemptions for energy-efficient buildings and renewable energy initiatives

• Property tax reductions and stamp duty exemptions for green-certified projects in some states

Sustainable business practices
 

Businesses are not left behind in the sustainability drive. Companies implementing eco-friendly practices, such as using renewable energy sources or adopting waste reduction measures, can enjoy tax credits with accelerated depreciation on green assets and deductions for expenses incurred on pollution control equipment.

• Section 80JJA of the Income Tax Act
 

This allows businesses to claim deductions for profits and gains derived from collecting and processing biodegradable waste. The motive is to encourage investment in sustainable practices like generating power, producing bio-fertilisers, and more, thus contributing to the overall goal of sustainable living as well as reducing tax liabilities.

• Section 80IA of the Income Tax Act
 

It provides tax benefits to businesses operating in specific sectors like power and distribution through solar and wind. You can claim 100% of your profits for up to 10 consecutive years. This section encourages investments in critical sectors and contributes to sustainable development.

• Wind power policy
 

India is actively promoting wind energy generation with tax incentives to encourage investment in this sector. These include –

• Concession on import duty for specified wind turbine components

• 10-year income tax holiday for wind power generation projects

• Concessional custom duty exemption on certain components of wind electric generators

• 100% exemption from excise duty on certain wind turbine components

This renewable energy investment allows you to receive tax credits which can reduce your total tax liability.

Also read - The smart homebuyer's guide to maximising home loan tax benefits

The takeaway
 

By embracing sustainable living practices and leveraging the power of tax breaks, you can bring about positive change – for the environment, your wallet, and your future. Remember, every watt saved, every green mile driven, and every eco-conscious choice translates to a ripple effect of positive environmental impact.

But remember, the journey begins with a single step, and that step starts with planning your finances effectively. Consider opening a dedicated savings account like the IDFC FIRST Bank Savings Account. It offers up to 7% p.a. interest rate which is one of the bests in industry, and monthly interest credits. This account will help you progress quickly towards your green goals and ensure you have the funds readily available when needed. Plus, with no charges on 28 commonly used savings account services, you can be confident that your money is working hard for you, just like you are for the planet.

So, take the first step today. Open an IDFC FIRST Bank Savings Account, explore the exciting world of sustainable living, and watch your wallet and the planet smile!

Disclaimer

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