Biogas industry to get major push as GST drops to 5%

India’s biggest tax overhaul in eight years has handed the biogas sector a powerful tailwind. With the GST on biogas plants and equipment slashed from 12% to 5% effective September 22, clean energy advocates say the move will make projects cheaper, attract private capital, and open up new opportunities for rural and industrial energy users. More than just a tax tweak, it signals a deliberate policy nudge—steering investment away from coal and toward homegrown renewable solutions.

India’s biggest tax overhaul in eight years has handed the biogas sector a powerful tailwind. With the GST on biogas plants and equipment slashed from 12% to 5% effective September 22, clean energy advocates say the move will make projects cheaper, attract private capital, and open up new opportunities for rural and industrial energy users. It signals a deliberate policy nudge steering investment away from coal and toward homegrown renewable solutions.

The Indian government’s sweeping GST reform is lighting a spark in the clean energy sector. Industry players say the drop in GST on biogas plants and related equipment has the potential to transform project viability, spark investment, and deepen renewable energy access nationwide.

The Indian Biogas Association (IBA) welcomed the GST Council’s decision, noting that the lower tax rate would make biogas systems more affordable, accessible, and attractive to investors. IBA President A.R. Shukla highlighted that the 7% cut could lead to a 4–5% rise in fresh investments in the near term, while broader ripple effects across the value chain could deliver even greater benefits. The association estimates that by 2030, the compressed biogas (CBG) sector could draw US$ 4–5 billion in private investment.

Industry leaders outside the IBA echoed this optimism. “The reduction of GST on biogas from 12% to 5% is a welcome and timely step that will enhance project viability and competitiveness of CBG,” said Atul Mulay, Chairperson of TPCI’s National Committee on Bio-Energy and President – BioEnergy at Praj Industries.

“It will support the rural economy by creating additional income streams for farmers through better use of agri-residues. For a country that imports more than 50% of its natural gas, scaling up CBG is critical to saving foreign exchange, strengthening energy security, and advancing India’s clean energy and net-zero agenda. We are confident this move will boost investor confidence, and as TPCI’s National Committee on Bio-Energy, we look forward to contributing to the growth of this vital sector.”

This tax cut is part of a broader, landmark simplification of the GST framework—India’s biggest overhaul since its introduction in 2017. The Council has eliminated the 12% and 28% slabs, consolidating most items into just two rates: 5% for everyday essentials, including clean energy goods, and 18% for the rest.

Beyond just saving money, this action is expected to shine a spotlight on India’s clean energy ambitions. As the Council reduced GST on biogas, solar equipment, and windmill parts to 5%, it simultaneously raised the GST for coal and lignite to 18%—a clear push away from fossil fuels and toward renewables. Analysts say the shift will ease project costs, help build a domestic green energy manufacturing ecosystem, and pave the way for cleaner, more affordable energy solutions.

The benefits are expected to cascade quickly. Financial institutions will find projects easier to evaluate, while SMEs and investors will see more attractive return profiles. Rural areas, especially where agriculture dominates, could benefit from biogas as a low-cost energy source built from organic waste.

To keep momentum going, the IBA has highlighted a deeper challenge: India’s “inverted duty” situation, where components (e.g., sub-parts of a biogas plant) attract higher taxes than the assembled system. This creates unnecessary cost penalties that undermine overall affordability. Aligning GST so that inputs and finished products are taxed consistently, the IBA suggests, would remove this structural barrier.

Finance Minister Nirmala Sitharaman has projected that the broader GST revamp is unlikely to disrupt the fiscal balance, as consumption and GDP growth are expected to offset any temporary revenue shortfall. Meanwhile, agricultural and renewable energy tools are widely seen as direct beneficiaries of the reform—boosting livelihoods and investment in rural India.

The impact is dual-layered: cleaning up the tax structure while cleaning up energy sources. By making biogas more affordable, the government is incubating a market where clean energy is not just sustainable—it’s economically compelling.

In practical terms, project developers can now build or retrofit with the confidence that input costs are lower, returns are stronger, and financing is more accessible. Investors can see longer-term value in sustainable infrastructure. Rural communities may find energy security built from their own organic waste. And policymakers can align climate targets with tangible economic outcomes.

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FAQs

1. What is the new GST rate on biogas plants and equipment?
   From September 22, the GST on biogas plants and devices has been reduced to 5%, down from the previous 12%. This is part of India’s largest GST overhaul in eight years.

2. How will the GST reduction impact biogas project investments?
   Industry experts predict a 4–5% increase in new investments in the short to medium term, with the compressed biogas (CBG) industry expected to draw US$ 4–5 billion by 2030, thanks to improved project viability.

3. Why is the GST cut on biogas plants significant for rural India?
   Lower taxes will make biogas systems more affordable and accessible, opening doors for rural energy users and promoting decentralized renewable energy from organic waste.

4. How does the GST reform support clean energy beyond biogas?
   The reform cuts GST to 5% for renewable components including solar, wind, and biogas technologies, while increasing GST on coal and lignite to 18%—a clear policy tilt toward renewables.

5. What is India’s “inverted duty” problem in the biogas sector?
   A disproportionately high GST on component parts versus the finished biogas equipment raises costs. Industry bodies are urging alignment of GST rates across inputs and final products to improve affordability.