Accelerated Depreciation

What is Accelerated Depreciation

Accelerated Depreciation (AD) is the tax provision under Section 32 of the Indian Income Tax Act 1961 that allows solar PV plant owners to claim 40 percent depreciation in the first year of operation, with the remainder depreciated over subsequent years. This provides significant tax benefit for commercial and industrial customers with taxable income, effectively reducing the solar investment cost.

For a C&I customer with sufficient taxable income, AD provides immediate tax savings of approximately 8.8 percent of the solar capex (40% depreciation × 22% corporate tax rate). Combined with ongoing depreciation over subsequent years, AD reduces effective solar capex by 15-25 percent on present-value basis.

For Indian solar, AD is one of the major tax incentives that makes commercial rooftop and utility solar economically attractive. C&I customers structuring solar through CAPEX model benefit directly. RESCO operators benefit as they are the asset owners. Residential customers cannot directly claim AD as the benefit requires business income to offset. A full walkthrough of how this plays out on an actual balance sheet is covered in our solar inverter depreciation tax benefits guide.

Why AD matters

Capex reduction. Effectively reduces solar investment by 15-25 percent.

IRR boost. Improves project IRR by 2-3 percentage points, a dynamic broken down in detail in our solar IRR and payback math for C&I piece.

Payback acceleration. Reduces payback period by 6-12 months.

Cash flow timing. Year 1 tax savings improve early cash flow, which also shifts the project’s NPV calculation in the owner’s favour.

C&I attractiveness. Major driver of commercial solar adoption, alongside the broader CAPEX vs OPEX decision C&I buyers weigh before committing to ownership.

AD calculation example

This represents 14-16 percent of original capex, making AD a substantial economic driver.

Technical deep dive

Depreciation schedule (40% on WDV)

For ₹100 capex:

Cumulative depreciation: ~92% over 5 years, balance written off later.

Tax savings (at 22% corporate tax)

For ₹100 capex:

Total tax savings: ~₹20.3 of ₹100 capex = 20.3%.

Present value calculation

At 10% discount rate, PV of tax savings:

• Year 1: ₹8.8 / 1.1 = ₹8.0
• Year 2: ₹5.3 / 1.21 = ₹4.4
• Year 3: ₹3.2 / 1.33 = ₹2.4
• Year 4: ₹1.9 / 1.46 = ₹1.3
• Year 5: ₹1.1 / 1.61 = ₹0.7
• Total PV of tax savings: ~₹16.8

Effective capex reduction: 16.8% on present value basis.

Requirements for AD claim

Real-world applications

C&I rooftop solar (most common AD beneficiary).

RESCO-mode third-party ownership, covered further in our Solar RESCO Model guide for C&I buyers.

Utility-scale captive solar, where MW-scale project management coordinates commissioning timelines with the tax year.

Solar plus storage with combined depreciation.

Open access solar with corporate offtaker.

Best practices

Plan capex timing to maximise tax year benefit.

Maintain detailed asset records.

Coordinate with tax advisor.

Use AD in financial models for accurate IRR.

Document the modules’ ALMM listing for subsidy compatibility.

Indian market context

AD has been major driver of Indian C&I solar growth since 2014.

Combined with falling capex, AD makes solar IRR strong for taxpaying businesses.

RESCO model leverages AD by holding ownership at the developer level.

Major Indian corporates (Reliance, Tata, Adani, Mahindra) use AD strategically.

CERC tariff orders factor AD in benchmark tariff methodology.

Standards and certifications

Key takeaways

Accelerated Depreciation provides 40 percent first-year tax depreciation for solar PV plants under Section 32 of Indian Income Tax Act. Reduces effective capex by 15-25 percent on present-value basis. Critical economic driver for Indian C&I solar adoption. RESCO model leverages AD by maintaining developer ownership. Combined with falling capex, AD makes solar IRR attractive for taxpaying corporates.

Further reading

For how Accelerated Depreciation plays out in real projects, these guides go deeper:

• Solar Inverter Depreciation in India: Tax Benefits
• 10kW Solar System Price in India 2026, Complete Cost
• LCOE of Solar in India: ₹4.8/kWh for a 50 kW C&I Plant
• Case Study, 25 kW Solar at a Coimbatore CBSE School

Sources

• Income Tax Act 1961, Section 32.
• Income Tax Rules.
• CBDT circulars and notifications.
• CERC Tariff Regulations 2024.
• MNRE solar scheme guidelines.
• Big Four tax advisory publications.
• IRENA renewable tax incentives report.
• IEA India Energy Outlook 2024.
• Industry analysis of solar AD benefit.