₹20 Crore Tax Savings: 80% Accelerated Depreciation on Solar Plant

Your company pays ₹30 crore income tax annually.

Build a ₹100 crore captive solar plant. Claim 80% accelerated depreciation.

Tax savings: ₹20 crore over 2 years. Payback period drops from 7 years to 4 years.

Accelerated depreciation benefit

Income Tax Act provides special treatment for renewable energy assets:

Standard Depreciation:

• 15 years straight-line
• 6.67% per year
• ₹100 crore plant = ₹6.67 crore/year depreciation

Accelerated Depreciation (Section 32):

• 80% over 2 years
• Year 1: 40%
• Year 2: 40%
• ₹100 crore plant = ₹40 crore Year 1 + ₹40 crore Year 2

Tax Shield:

• Depreciation: ₹80 crore
• Tax rate: 25%
• Tax savings: ₹20 crore

How the tax math works

₹100 Crore Solar Plant — Tax Impact

Year 1:

• Profit before tax (before depreciation): ₹50 crore
• Solar depreciation claimed: ₹40 crore
• Taxable income: ₹10 crore
• Tax @ 25%: ₹2.5 crore
• Without solar depreciation, tax would be ₹12.5 crore
• Tax saved Year 1: ₹10 crore

Year 2:

• Profit before tax (before depreciation): ₹50 crore
• Solar depreciation claimed: ₹40 crore
• Taxable income: ₹10 crore
• Tax @ 25%: ₹2.5 crore
• Tax saved Year 2: ₹10 crore

Total 2-year tax savings: ₹20 crore

Payback impact

50 MW Captive Plant Economics:

Without Tax Benefits:

• Capex: ₹100 crore
• Annual power savings: ₹14.25 crore (vs grid)
• Simple payback: 7.0 years

With Tax Benefits:

• Capex: ₹100 crore
• Year 1-2 tax savings: ₹20 crore
• Effective capex: ₹80 crore
• Annual power savings: ₹14.25 crore
• Tax-adjusted payback: 5.6 years

Plus Odisha Subsidy (if eligible):

• Capital subsidy: 30% = ₹30 crore
• Effective capex: ₹50 crore (after subsidy + tax)
• Final payback: 3.5 years

Who benefits most

High Tax Liability Companies:

• Annual tax: ₹20+ crore
• Effective tax rate: 25-30%
• No MAT limitations
• Can absorb ₹40 crore/year depreciation

Profitable Operations:

• Consistent profits
• Positive taxable income
• Not utilizing loss carryforwards
• Tax planning opportunities

Large Capex Capacity:

• ₹100+ crore annual capex budget
• Balance sheet supports debt
• Long-term operating horizon
• Strategic asset ownership desired

Manufacturing Sectors:

• Steel, cement, chemicals
• Automotive, pharmaceuticals
• Food processing, textiles
• Any large industrial facility with high tax bills

PPA vs Captive: Tax comparison

Solar PPA (No Ownership):

• Capex: ₹0
• Annual cost: ₹9.6 crore
• Depreciation: ₹0 (we own the plant)
• Tax benefit: ₹0
• Tax position: Unchanged

Captive Solar (You Own):

• Capex: ₹100 crore
• Annual O&M: ₹1.5 crore
• Depreciation: ₹40 crore/year (Year 1-2)
• Tax benefit: ₹20 crore
• Effective capex after tax: ₹80 crore

Decision Point:

• If tax liability >₹10 crore/year → Captive delivers ₹20 crore value
• If tax liability <₹5 crore/year → PPA makes more sense
• If tax loss position → PPA only option

Depreciation schedule detail

₹100 Crore Solar Plant — 15-Year Schedule:

Key Insight: 87% of tax benefits captured in first 2 years

MAT considerations

Minimum Alternate Tax (MAT) Limitation:

Some companies face MAT (15% of book profits):

• Book profit calculation doesn't allow full depreciation benefit
• MAT credit can be carried forward
• Utilizable against future normal tax
• Timing difference, not permanent loss

MAT Impact Analysis:

Company Paying Normal Tax (25%):

• Full ₹20 crore benefit realized immediately
• No MAT complications
• Best case

Company Under MAT (15%):

• Pay MAT on book profits
• Depreciation creates MAT credit
• Credit utilizable when return to normal tax
• Benefit delayed, not lost

MAT Planning:

• Work with tax advisors
• Time solar investment strategically
• Coordinate with other tax planning
• Multi-year benefit realization

Real CFO example

60 MW Steel Plant — Tax Planning with Solar

Tax Position (2023):

• Annual profit before tax: ₹80 crore
• Depreciation (existing assets): ₹20 crore
• Taxable income: ₹60 crore
• Tax @ 25%: ₹15 crore
• After-tax profit: ₹45 crore

Solar Decision (2024):

• Built ₹120 crore captive solar plant
• Financed: ₹84 crore debt (70%), ₹36 crore equity (30%)

Tax Impact (2024-2025):

• Solar depreciation Year 1: ₹48 crore
• Existing depreciation: ₹20 crore
• Total depreciation: ₹68 crore
• Profit before tax: ₹80 crore
• Taxable income: ₹12 crore
• Tax @ 25%: ₹3 crore
• Tax saved: ₹12 crore (vs ₹15 crore without solar)

Cash Flow Impact:

• Tax savings: ₹12 crore Year 1, ₹12 crore Year 2
• Used to repay debt principal faster
• Debt paydown: 4 years ahead of schedule
• Interest savings: ₹8 crore

CFO quote: "Solar depreciation let us pay off debt 4 years early. The ₹24 crore tax savings went straight to debt reduction. Plus we eliminated ₹17 crore annual power bills. Triple benefit."

Debt financing + depreciation synergy

Optimal Structure:

₹100 Crore Solar Plant:

• Debt (70%): ₹70 crore @ 9%
• Equity (30%): ₹30 crore
• Annual debt service: ₹8 crore

Year 1-2 Cash Flows:

• Power savings: ₹14.25 crore
• Tax savings: ₹10 crore/year
• Available cash: ₹24.25 crore
• Debt service: ₹8 crore
• Free cash flow: ₹16.25 crore/year

Result:

• Debt paid off in 5 years (vs 10-year term)
• Interest savings massive
• Equity payback: 2 years
• Post-payback: Pure cash generation

State-specific incentives stack

Odisha Combined Benefits:

₹100 Crore Solar Plant:

1. Accelerated Depreciation:

   • Tax savings: ₹20 crore

2. Capital Subsidy (30%):

   • Direct grant: ₹30 crore

3. SGST Reimbursement (7 years):

   • Estimated: ₹3-5 crore

4. Electricity Duty Exemption:

   • Savings: ₹50 lakh/year × 5 years = ₹2.5 crore

Total Benefits: ₹55.5 crore on ₹100 crore investment

Effective Cost: ₹44.5 crore Payback: 3.1 years

Odisha is the best state in India for captive solar tax + subsidy benefits

When depreciation benefit doesn't help

Tax Loss Position:

• Company has losses
• No taxable income
• Depreciation creates/increases loss carryforward
• Benefit delayed until profitable
• Solution: Choose PPA instead

Low Tax Liability:

• Annual tax <₹5 crore
• Can't absorb ₹40 crore depreciation
• Benefit wasted
• Solution: Smaller captive or PPA

MAT Situation (Permanent):

• Book-tax differences large
• Always under MAT
• Depreciation benefit limited
• Solution: Evaluate PPA vs captive carefully

Captive works best for highly profitable companies with ₹10+ crore annual tax bills

The tax planning reality

Most CFOs think solar is an energy decision.

It's also a tax optimization strategy.

₹100 crore captive plant = ₹20 crore tax shield = 20% of investment recovered through taxes alone.

Add:

• ₹14.25 crore/year power savings
• ₹30 crore capital subsidy (Odisha)
• ₹2.5 crore duty exemptions

Total value: ₹52.5 crore in 2 years on ₹100 crore investment

Post-tax payback: 3.2 years. Then 22 years of pure savings.

For CFOs with ₹10+ crore annual tax liability.

For profitable companies seeking tax optimization.

For finance teams evaluating captive vs PPA structures.

We build captive solar plants that deliver ₹20 crore tax savings through accelerated depreciation. Combined with power savings and subsidies, payback drops to 3-4 years.

Request a tax benefit analysis—we'll model your company's specific tax position, depreciation impact, and combined benefit of tax savings + power cost reduction + available subsidies.

Disclaimer: Tax benefits depend on company-specific tax position, applicable tax rates, MAT status, and availability of taxable income to absorb depreciation. Accelerated depreciation rates and rules are subject to Income Tax Act provisions and may change. State subsidies and incentives vary by location and are subject to eligibility criteria and government policy. All tax calculations are illustrative and should be verified with your tax advisors. This content is not tax advice. Consult qualified tax professionals for company-specific tax planning. Actual benefits will vary based on individual circumstances.