Taxability of Environment-Friendly Products under GST
To eliminate the cascading effect of the previous taxation system, the Central Government introduced the Goods and Services Tax on the 1st of July 2017. The GST is a destination-based tax, and it has eliminated the old tax system. Under the GST, the whole tax domain in the country has become a unified structure, easier to comply with. GST is an indirect tax and it has replaced all other indirect taxes, including service, value-added, central excise, etc., levied on multiple supply chain stages. This article discusses the role of GST in promoting environment-friendly products.
Climate change is a real thing and world leaders are taking significant steps to curb the change. One such step by the Indian government is the lower GST Rates on environment-friendly products.
Taxability of Environment-Friendly Products in GST
Products that do not harm the environment like organic agriculture, eco-tourism, electric mobility, renewable energy generated by solar or other products than fossil fuel, green buildings, or more are considered environment-friendly products. When the GST was first introduced, the taxability of such products was quite high.
However, given the current climatic scenarios and need of the hour, the government has relaxed the tax rates on such products. The electric vehicles are taxed at the rate of 5% under GST in 2025 which was 12% back then. Earlier electric vehicles were taxed 18% whereas the current tax rate is 5%. Electric vehicles do not harm the environment, unlike fossil fuel-based vehicles.
All renewable energy devices such as solar panels or cookers are taxed at the rate of 12% though it was 5% earlier. However, to promote sustainable growth of renewable energy, the tax rates are increased. Solar structures and controllers are taxed at 18%.
70% of the total taxable value of a contract to set up a solar system is taxed at 12% while the remaining 30% is taxed at 18%.
| Environmental Services | GST Rates |
| Renewable Energy Services | 5% |
| Plantation Work | 18% |
| Solar power generation such as inverters, lamps, panels | 12% |
| EVs | 5% |
| Herbal products, organic and vegetable fertilizers | 5% |
| Solar water heater and system | 5% |
Non-Environment Friendly Product under GST
Fossil fuel is considered quite unfriendly for the environment, so it is kept out of the scope of GST. Petrol and diesel are not covered under the goods and services tax as they are treated under previous tax systems, such as value-added tax, central excise duty, and central sales tax.
Household-use plastic items and waste, parings, and scrap of plastics are taxable at 18% under the GST. On PVC pipes and fittings, GST is charged at the rate of 18% while on PVC sheets and films, the GST is charged at the rate of 28%.
Generally, major plastic products are taxed at the rate of 18% while 12% or 28% are also charged. Most used items in households from house building to kitchen use plastic items are chargeable at the rate of 18%. The exception is plastic furniture such as chairs, storage units, and tables which attracts a 12% GST rate.
GST exemptions are available on clean technologies like waste-to-energy plants though emerging solutions like green hydrogen, bio-CNG, and Eco-friendly construction materials still fall under the 18% tax rate.
Get Started with TaxDunia
Environmental-friendly products bear low costs under GST due to low tax rates while the products that harm the environment have high GST rates applicable on that. To get any kind of services related to taxation, finance, or advisory on valuation, risk, etc. reach out to TaxDunia. We offer customized and technology-driven solutions.
