In short
- 40% first-year depreciation under Section 32 is unchanged for FY 2025-26
- It is a deduction, so the cash benefit is 40% of cost multiplied by your effective tax rate — roughly 10% of capital cost at a 25% rate
- On a 500 kW plant this typically moves payback from about 3.0 years to about 2.7
- Eligibility turns on ownership, business use and commissioning date, so confirm with your accountant before it goes in a business case
What the provision says
Solar power generating systems attract accelerated depreciation at 40% in the first year under Section 32 of the Income Tax Act. The rate is unchanged in the 2025-26 Finance Act. Where the asset is put to use in the same year in which it is acquired, an additional depreciation allowance may also apply.
Depreciation is calculated on the actual cost of the asset, which for a rooftop plant typically includes modules, inverters, mounting structure, installation, commissioning, freight and any taxes not otherwise recoverable as credit.
The number is a deduction, not a refund
This is the point most often lost. Claiming 40% depreciation on a ₹1 crore plant does not put ₹40 lakh back in the account. It reduces taxable income by ₹40 lakh, and the cash benefit is that figure multiplied by your effective tax rate.
For a domestic company on the concessional regime under section 115BAA, the effective rate is around 25% once surcharge and cess are counted. So ₹40 lakh of depreciation is worth roughly ₹10 lakh of tax in the first year — real money, and about 10% of the capital cost, but a tenth rather than four tenths.
What it does to payback
Take a 500 kW plant at ₹38,000 per kW: ₹1.90 crore of capital. In Gujarat that array generates roughly 8,03,000 units a year at 4.4 units per kWp per day. Valuing a displaced unit conservatively at ₹8 — below the all-in tariff, because fixed and demand charges keep running — gives about ₹64 lakh of value a year.
Simple payback is therefore around three years. The first-year depreciation benefit of roughly ₹19 lakh reduces the effective outlay to about ₹1.71 crore and pulls payback closer to 2.7 years. Published analysis puts post-tax CAPEX payback for industrial projects in the 2.5 to 3.5 year range, which is where this lands.
Conditions worth checking before you rely on it
The benefit depends on facts about your business, not about the plant. Ownership, use in the business, the date the asset is put to use and which tax regime the entity has opted for all affect what can be claimed and when.
Input tax credit on GST paid is a separate question and is generally available where the plant is used for business, which lowers the effective capital cost further. Both of these belong with your accountant before they go into a board paper — we can supply the asset schedule and commissioning dates they will ask for.
- The entity owns the asset and uses it for its business
- The date the plant was put to use, which sets the year of claim
- Which tax regime the entity has opted for, as this sets the effective rate
- Whether half-year depreciation applies based on commissioning date
- GST input tax credit position for your registration
Questions we are asked about this
Is accelerated depreciation on solar still 40%?
Yes. Solar power generating systems attract 40% depreciation in the first year under Section 32 of the Income Tax Act, and the rate is unchanged in the 2025-26 Finance Act.
How much cash does 40% depreciation actually save?
The deduction reduces taxable income by 40% of the asset cost. The cash benefit is that amount multiplied by your effective tax rate — roughly 25% for a domestic company under section 115BAA, so about 10% of the capital cost in the first year.
Does a residential rooftop system get accelerated depreciation?
No. Depreciation is a business provision and applies where the asset is owned and used for business. A home rooftop is instead covered by central assistance under PM Surya Ghar, which is a different mechanism entirely.
Can GST input tax credit be claimed as well?
GST paid on a commissioned plant used for business is generally available as input tax credit, which reduces the effective capital cost. The position depends on your registration and how the asset is capitalised, so it should be confirmed with your accountant.
Work out what this means for your site
The calculator gives a first capacity range from one bill. A survey turns that into something you can put in a business case.
