Accelerated depreciation is a method of depreciation used to depreciate the assets in a manner that a significant depriciation is allowed in the first few years. Accelerated depreciation can reduce costs during the project’s start up year.
In solar projects, accelerated depreciation is widely used as an incentive to lessen the burden of tax. In India, Accelerated depreciation (AD) allows investors, mostly setting up capacity for captive use, to take advantage of up to 40% of the project cost in first year and 24% of the project cost in 2nd year.
For a 100kWp installed with a capital cost of approximately INR 70 Lacs, a developer can write off payable tax for up to INR 10 Lacs in the first year of operation.