The main government subsidy for Battery Energy Storage Systems in India is the Viability Gap Funding scheme, a capital grant of up to 40% awarded through competitive bidding. Its first tranche was approved at ₹9,400 crore, including ₹3,760 crore of budgetary support, and now covers 13,200 MWh after being raised from 4,000 MWh because battery prices fell. A second tranche adds ₹5,400 crore for 30 GWh at ₹18 lakh per MWh.
For commercial and industrial enterprises, fiscal benefits include 40% Accelerated Depreciation under Section 32 of the Income Tax Act, 25-year waivers on Inter-State Transmission System (ISTS) charges, and state-level renewable open access exemptions.
How the VGF scheme for BESS works, and what has changed since it was approved
The Union Cabinet approved the Viability Gap Funding Scheme for Development of Battery Energy Storage Systems on 6 September 2023. It is a capital grant awarded through competitive bidding, not a tariff subsidy, and it was approved with an initial outlay of ₹9,400 crore including ₹3,760 crore of budgetary support, covering up to 40% of a project's capital cost.
- Capacity as approved: 4,000 MWh of BESS projects to be developed by 2030–31.
- Who it is for: a minimum of 85% of funded project capacity is made available to distribution companies, so the benefit reaches consumers through the DISCOM rather than the developer.
- Target levelised cost: ₹5.50 to ₹6.60 per kWh, which is the figure that makes stored renewable energy competitive with coal and gas for meeting peak demand.
The first tranche now buys three times the capacity it was approved for
This is the part most summaries of the scheme have not caught up with. Because battery prices fell faster than the scheme assumed, the Ministry of Power raised the first tranche from 4,000 MWh to 13,200 MWh while keeping the same ₹3,760 crore allocation. The budget did not grow; the amount of storage it pays for did. VGF support under this tranche applies to BESS approved during 2023–26.
The scale needed is larger still. The National Electricity Plan 2023 estimates India will require 236 GWh of battery storage by 2031–32, which puts both tranches of the scheme in proportion: they are a start on the problem rather than a solution to it.
The second tranche: ₹5,400 crore for 30 GWh, funded from the PSDF
A second tranche was announced in June 2025. It commits ₹5,400 crore, drawn entirely from the Power System Development Fund, to a further 30 GWh of battery storage at a grant of ₹18 lakh per MWh. Of that, 25 GWh is allocated across fifteen states and 5 GWh to NTPC, the latter specifically to make better use of thermal generation and transmission assets that already exist.
| State | Allocated capacity |
|---|---|
| Rajasthan | 4 GWh |
| Gujarat | 4 GWh |
| Maharashtra | 4 GWh |
| Karnataka | 2 GWh |
| Andhra Pradesh | 2 GWh |
| Tamil Nadu | 1.5 GWh |
| Madhya Pradesh | 1.5 GWh |
| Telangana | 1.5 GWh |
| Uttar Pradesh | 1.5 GWh |
| Haryana | 500 MWh |
| Kerala | 500 MWh |
| Punjab | 500 MWh |
| Chhattisgarh | 500 MWh |
| Odisha | 500 MWh |
| Uttarakhand | 500 MWh |
| NTPC | 5 GWh |
More than half the grant arrives after the system is running
VGF is released in five instalments, and the schedule changes how a project has to be financed: 10% on financial closure, 45% on reaching the commercial operation date, and 15% a year for the three years after that. Only a tenth of the grant is available before construction, so the developer carries the capital through commissioning. The Central Electricity Authority monitors the scheme and the Ministry of Power oversees it.
Last reviewed: 7 October 2026.Sources: the Cabinet approval of 6 September 2023 for the outlay, the 40% ceiling, the 85% DISCOM share and the levelised-cost target; Press Information Bureau release 2118325 of 3 April 2025, Ministry of Power, for the increase to 13,200 MWh, the five-instalment schedule and the 236 GWh estimate; and the Ministry of Power's second-tranche announcement reported in June 2025 for the ₹5,400 crore, the 30 GWh and the state allocation. Policy figures and eligibility conditions change, and tender terms are set by the issuing authority rather than by this page.
Energy Storage Obligations (ESO) for DISCOMs
Following the success of Renewable Purchase Obligations (RPO), the Ministry of Power established trajectory mandates for Energy Storage Obligations (ESO) under the Electricity Act:
| Financial Year | Mandatory Storage Percentage | Projected Energy Storage Deployment |
|---|---|---|
| 2024 – 2025 | 1.50% | Initial pilot grid-scale storage tenders |
| 2026 – 2027 | 2.50% | C&I behind-the-meter and substation storage scale-up |
| 2028 – 2029 | 3.50% | Multi-GWh utility and solar-park integration |
| 2029 – 2030 | 4.00% | Building toward the CEA National Electricity Plan requirement of 47.24 GW / 236 GWh of BESS by 2031–32 |
PLI Scheme for Advanced Chemistry Cells (ACC)
The Government of India has committed ₹18,100 Crores under the Production Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC) Battery Storage. The program incentivizes domestic setting up of Giga-scale cell manufacturing facilities:
- Mandates a minimum 50 GWh cumulative capacity with 60% domestic value addition within five years.
- Eliminates foreign exchange volatility and customs shipping delays for Indian BESS pack integrators like CLN Energy.
- Accelerates domestic adoption of advanced LFP (Lithium Iron Phosphate) chemistries with zero reliance on expensive cobalt imports.
Corporate Tax Benefits & Customs Duty Exemptions
For commercial facilities, industrial factories, and private data centers investing in captive BESS, the central government provides powerful fiscal incentives:
- 40% Accelerated Depreciation: Commercial entities in India can claim 40% depreciation on the capital value of battery storage equipment in Year 1 under Section 32 of the Income Tax Act, shielding substantial operating profits from corporate tax.
- ISTS Transmission Charge Waiver: Complete 25-year waiver of Inter-State Transmission System (ISTS) charges for electricity generated from co-located solar/wind power and delivered to BESS projects commissioned before June 2025.
- Customs Duty Rationalization: Concessional customs duties on capital goods imported for lithium-ion battery manufacturing and packaging equipment.
To explore how these fiscal policies translate into project numbers for your business, consult our foundational BESS cost guide, dive into the Economics of BESS Pricing, or read our national energy storage outlook.
A VGF-backed project still has to be built by somebody. If you are at the stage of shortlisting, compare the field in our guide to the top BESS companies and battery energy storage manufacturers in India, and see what a tender actually asks a supplier to produce in supplying batteries for a BESS tender.
Are you planning a project under a subsidy or VGF scheme?
Tell us the scheme and the tender, and our project team will tell you what the requirement means for the system and what documents we can supply.
Frequently asked questions
What is the Viability Gap Funding (VGF) scheme for BESS in India?
It is a central capital grant for battery storage projects, awarded through competitive bidding. The Union Cabinet approved it on 6 September 2023 with an initial outlay of ₹9,400 crore, including ₹3,760 crore of budgetary support, covering up to 40% of a project’s capital cost, with a minimum 85% of funded capacity made available to distribution companies and a target levelised cost of storage of ₹5.50 to ₹6.60 per kWh. The capacity it buys has since grown: because battery prices fell, the Ministry of Power raised the first tranche from 4,000 MWh to 13,200 MWh without increasing the ₹3,760 crore allocation. A second tranche of ₹5,400 crore for a further 30 GWh was announced in June 2025.
How much VGF is paid per MWh, and when is it released?
Under the second tranche the grant is ₹18 lakh per MWh. Payment is staged across five instalments rather than paid upfront: 10% on financial closure, 45% on reaching the commercial operation date, and then 15% a year for the following three years. That schedule matters when modelling a project, because more than half the grant arrives after the system is already running.
Which states have BESS capacity allocated under the second VGF tranche?
Of the 30 GWh in the second tranche, 25 GWh is allocated across fifteen states and 5 GWh to NTPC. Rajasthan, Gujarat and Maharashtra have 4 GWh each; Karnataka and Andhra Pradesh 2 GWh each; Tamil Nadu, Madhya Pradesh, Telangana and Uttar Pradesh 1.5 GWh each; and Haryana, Kerala, Punjab, Chhattisgarh, Odisha and Uttarakhand 500 MWh each. Funding comes entirely from the Power System Development Fund.
Are private commercial and industrial factories eligible for BESS subsidies?
While the central VGF scheme primarily targets utility-scale and DISCOM-linked public tenders, commercial enterprises and private factories benefit directly from other fiscal incentives, including 40% Accelerated Depreciation under Section 32 of the Income Tax Act, exemptions on Inter-State Transmission System (ISTS) charges, and state-level green open access waivers.
What is the Energy Storage Obligation (ESO) mandated by the Ministry of Power?
The Ministry of Power has mandated Energy Storage Obligations (ESO) requiring all electricity distribution companies (DISCOMs) and designated open-access consumers to procure a defined percentage of their total electricity consumption from energy storage systems, rising progressively to 4.0% by 2029–2030.
How does the Production Linked Incentive (PLI) scheme impact BESS pricing?
The ₹18,100-Crore National Programme on Advanced Chemistry Cell (ACC) Battery Storage provides financial incentives for setting up 50 GWh of domestic cell manufacturing capacity in India. As domestic gigafactories scale, local cell production is expected to reduce logistics costs, import duties, and forex exposure, lowering domestic BESS system pricing by 15% to 25% over the next three years.
Can rooftop solar subsidies (PM Surya Ghar) be used for battery storage?
The PM Surya Ghar: Muft Bijli Yojana provides direct subsidies for residential grid-tied rooftop solar panels up to 3 kW (up to ₹78,000). While the central subsidy currently applies to the solar PV component, homeowners frequently pair this with compact residential LiFePO₄ storage (such as the CLN Home Series) to ensure full power continuity during grid cuts.