Complete Guide to Government Incentives for Industrial Heat Pumps in India (2025-26)
Key Takeaway: Indian manufacturers can recover 25-40% of their heat pump investment through government incentives, tax benefits, and carbon credit monetization. This guide shows you exactly how to access these benefits.
Beyond the significant energy cost savings that industrial heat pumps deliver, a range of government incentives can dramatically improve your project's financial returns. This comprehensive guide covers every major incentive available to Indian manufacturers in 2025-26, with practical steps to claim them.
What This Guide Covers
- PAT Scheme: How to earn and trade Energy Saving Certificates (ESCerts)
- State Incentives: Gujarat, Tamil Nadu, Maharashtra subsidies
- Carbon Credits: CCTS compliance market and monetization
- Tax Benefits: Accelerated depreciation and GST recovery
- PLI Scheme: What it means for buyers (indirect benefits)
1. PAT Scheme (Perform, Achieve, Trade)
What is PAT and Why It Matters for Heat Pump Projects
The PAT scheme is a regulatory energy efficiency mechanism administered by the Bureau of Energy Efficiency (BEE) for notified "Designated Consumers" (DCs) in energy-intensive sectors. Each DC receives a Specific Energy Consumption (SEC) reduction target, and overachievement can be converted into tradable Energy Saving Certificates (ESCerts).
Industrial heat pumps are one of the most effective levers to reduce SEC through:
- Fuel switching from fossil fuels to electricity
- Waste heat recovery integration
- Process electrification with high COP systems
- Improved energy efficiency (300-400% vs traditional heating)
PAT Scheme Results: Verified Numbers
PAT Cycle Performance (BEE Official Data)
| Metric | PAT Cycle I | PAT Cycle III | PAT Cycle VII |
|---|---|---|---|
| Energy Savings Achieved | 8.67 Mtoe | 1.594 Mtoe | Target: 8.485 Mtoe |
| Original Target | 6.886 Mtoe | - | - |
| CO2 Reduction | ~31 million tonnes | - | - |
| ESCerts Issued | ~38.25 lakh | ~7.44 lakh | - |
| Designated Consumers | - | - | ~707 DCs |
Source: BEE Annual Reports, PIB Government Releases, Ministry of Power Annual Report 2023-24
ESCerts Trading: Real Market Activity
ESCerts are actively traded on power exchanges, providing real monetization opportunities:
PAT Cycle I Trading Outcomes
- ESCerts Issued: ~38.25 lakh certificates
- ESCerts Traded: ~12.98 lakh certificates
- Total Traded Value: ~Rs. 100 crore
- Trading Platform: Indian Energy Exchange (IEX)
Source: BEE PAT Hub, IEX Market Reports
How to Participate in PAT
Step-by-Step PAT Compliance & Monetization
- Check Eligibility: Verify if your facility is a PAT Designated Consumer based on sector and threshold rules. Start at the BEE PAT Hub.
- Understand Your Baseline SEC: Review your assigned Specific Energy Consumption target for the current PAT cycle.
- Implement Projects: Install heat pump systems, waste heat recovery, or other efficiency measures to exceed targets.
- Measurement, Reporting, Verification (MRV): Engage an accredited energy auditor/verifier for compliance documentation.
- ESCerts Issuance: If you overachieve, certificates are issued and appear in the BEE registry.
- Trade on Exchange: Sell ESCerts on IEX or PXIL power exchanges to monetize savings.
Important Note: PAT participation is mandatory for designated consumers. Even if you're not a DC, understanding PAT helps when selling to large industrial customers who need to meet their own targets - your heat pump solution becomes part of their compliance strategy.
2. State-Level Incentives
State incentives are often the most practical for industrial heat pump buyers because they can directly reduce capital costs, audit expenses, and improve project ROI. Here are the most relevant schemes:
Gujarat: Energy Conservation Assistance
Gujarat's Industrial Policy 2020 includes a dedicated scheme for "Saving in Consumption of Energy and Water" that is highly relevant for heat pump retrofits:
Gujarat Incentive Structure
- Energy/Water Audit Reimbursement: 75% of audit cost, capped at Rs. 50,000 per audit
- Equipment Assistance: 25% of cost of equipment recommended by the audit authority, capped at Rs. 20 lakh (one-time assistance)
- Eligibility: Linked to energy audit recommendations from accredited agencies
Source: Gujarat Industrial Policy 2020, GEDA Scheme Documents
Why this matters for heat pumps: If your energy audit recommends a heat pump installation (which it likely will for process heating applications), you can claim 25% of the equipment cost up to Rs. 20 lakh - a significant reduction on a typical Rs. 40-80 lakh project.
Where to apply:
- Gujarat Industries Commissionerate Portal
- GEDA (Gujarat Energy Development Agency) for Walk-Through Energy Audit schemes
- BEE's SIDHIEE portal also lists GEDA audit subsidy schemes with eligibility thresholds
Tamil Nadu: PEACE Scheme for MSMEs
Tamil Nadu's MSME Department operates the PEACE scheme (Promotion of Energy Audit and Conservation of Energy), which directly supports heat pump adoption:
Tamil Nadu PEACE Scheme
- Audit Cost Support: Reimbursement of a significant share of energy audit costs
- Implementation Support: Assistance for replacing or retrofitting energy-efficient machinery and equipment based on audit recommendations
- Target Beneficiaries: MSMEs in manufacturing sector
Source: Tamil Nadu MSME Department, TN Industrial Policy 2021
Why this is valuable: The scheme maps directly to industrial heat pump retrofits when the audit recommends electrification or efficiency upgrades - which is the typical recommendation for process heating applications using conventional fuels.
Where to apply:
- Tamil Nadu MSME Online Portal - PEACE scheme guidelines
- Tamil Nadu Industrial Policy 2021 lists broader "standard incentives" including capital subsidies for eligible projects
Maharashtra: Industrial Policy Incentives
Maharashtra provides a mix of incentives that can benefit heat pump projects:
Maharashtra Incentive Categories
- Electricity Duty Exemptions: Available for eligible industrial units
- Stamp Duty Exemptions: On land/property transactions for industrial projects
- SGST-Linked Incentives: Refunds based on area category, investment, and employment
- Capital Subsidies: For specific project categories and locations
Note: Maharashtra notified a new industry policy on December 31, 2025 with updated fiscal incentives. The specific benefits depend on your area category (A, B, C, D, D+, Naxal-affected, or No Industry District) and investment/employment thresholds.
Documents typically required:
- Udyam Registration Certificate
- GST filings and returns
- Employment records
- Fixed asset invoices and installation certificates
Recommendation: For Maharashtra projects, verify the latest Government Resolution (GR) applicable to your area category and consult with the District Industries Centre (DIC) for current eligibility and application process.
3. Carbon Credit Monetization
India now has a formal compliance carbon market framework. Here's what it means for heat pump investments:
Carbon Credit Trading Scheme (CCTS) 2023
The Government of India notified the Carbon Credit Trading Scheme, 2023 under the Energy Conservation Act, with BEE as Administrator. Key features:
CCTS Framework Overview
- Compliance Market: Companies in covered sectors with emission intensity targets can earn Carbon Credit Certificates (CCCs) by overachieving
- Offset Mechanism: Amendments have introduced provisions for offset mechanisms
- Registry & Trading: Formal institutional structure for issuance and trading
- Heat Pump Relevance: Projects that materially reduce emission intensity can be part of compliance strategy
How to Position Your Heat Pump Project for Carbon Credits
Step-by-Step Approach
- Identify Compliance Status: Determine if your entity is under compliance targets (sector thresholds and notified obligations)
- Baseline Documentation: Document current emission intensity before heat pump installation
- Project Design: Align heat pump project documentation with MRV (Measurement, Reporting, Verification) requirements from day one
- Implementation & Monitoring: Install system with proper metering and monitoring infrastructure
- Verification: Engage accredited verifier to confirm emission reductions
- Certificate Issuance: Apply for CCC issuance through the registry process
Green Credit Program (Separate from CCTS)
Note that the Green Credit Rules 2023 describe a separate voluntary market mechanism focused initially on tree plantation and similar activities - this is not the same as industrial carbon credits from energy efficiency projects.
Practical Advice: The carbon credit landscape is evolving rapidly. For projects over Rs. 1 crore, consider engaging a carbon credit consultant to ensure proper documentation and maximize monetization potential. The incremental cost is typically recovered many times over.
4. Tax Benefits
Accelerated Depreciation
Energy-efficient equipment including industrial heat pumps qualifies for accelerated depreciation under the Income Tax Act:
Depreciation Benefits
- Rate: Up to 80% depreciation in the first year for qualifying energy-efficient equipment
- Impact: Significant tax shield in Year 1, improving project cash flows
- Eligibility: Equipment must be certified as energy-efficient (typically via BEE star rating or equivalent certification)
GST Input Credit
Industrial heat pump purchases are eligible for GST input credit recovery:
- GST paid on heat pump equipment can be claimed as input credit
- Installation and commissioning services GST is also recoverable
- Ensure proper tax invoices and documentation from suppliers
Combined Tax Impact Example
Illustrative Tax Benefit Calculation (Rs. 50 Lakh Project)
| Project Cost (before GST) | Rs. 50,00,000 |
| GST @ 18% | Rs. 9,00,000 |
| GST Input Credit Recovery | Rs. 9,00,000 |
| Year 1 Depreciation (80%) | Rs. 40,00,000 |
| Tax Shield @ 25% rate | Rs. 10,00,000 |
| Total Year 1 Tax Benefits | Rs. 19,00,000 |
Note: Actual benefits depend on your company's tax situation. Consult your tax advisor for specific calculations.
5. PLI Scheme: What Buyers Need to Know
The Production Linked Incentive (PLI) scheme is primarily for manufacturers, not buyers. However, understanding it helps you evaluate the market:
White Goods PLI Scheme Facts
- Timeline: FY 2021-22 to FY 2028-29
- Coverage: HVAC and refrigeration components and sub-assemblies
- 2025 Status: Application windows extended, committed investments from applicants confirmed
- Official Portal: PLI White Goods Portal
How PLI Benefits Buyers (Indirectly)
- Improved Supply Chain: More domestic manufacturing means better availability
- Cost Reduction: Local production reduces import duties and logistics costs
- Service Network: Domestic manufacturers invest in service infrastructure
- Technology Transfer: Global players setting up in India bring latest technology
Summary: Incentives at a Glance
| Incentive | Benefit | Who Qualifies | Application |
|---|---|---|---|
| PAT Scheme | Tradable ESCerts for energy savings | Designated Consumers (large energy users) | BEE PAT Hub |
| Gujarat Subsidy | 75% audit cost + 25% equipment (up to Rs. 20L) | Industries with energy audit | GEDA / Industries Commissionerate |
| TN PEACE | Audit + implementation support | MSMEs in Tamil Nadu | TN MSME Portal |
| Carbon Credits (CCTS) | Tradable CCCs for emission reduction | Covered sectors with targets | BEE Registry |
| Accelerated Depreciation | Up to 80% Year 1 depreciation | All taxpaying entities | Via Income Tax filing |
Next Steps: Maximizing Your Incentives
Your Action Checklist
- Calculate Base ROI: Use our ROI calculator to establish baseline project economics
- Check PAT Status: Determine if you're a Designated Consumer or selling to one
- Identify State Incentives: Contact your state's Industries Department or MSME portal
- Consult Tax Advisor: Quantify accelerated depreciation and GST benefits for your situation
- Document from Day 1: Set up proper monitoring and documentation for carbon credit eligibility
- Get Expert Proposal: Request a detailed proposal that factors in all applicable incentives
Disclaimer: Government schemes and incentives are subject to change. This article is for informational purposes based on publicly available data as of January 2026. Always verify current eligibility, rates, and application procedures with official sources (BEE, state government portals, tax authorities) before making investment decisions. Consult qualified professionals for tax and legal advice specific to your situation.
Related Resources
- Industrial Heat Pump ROI Calculator Guide - Calculate your baseline savings
- Heat Pump vs Boiler Cost Comparison - Understand the financial case
- Free ROI Calculator - Get instant estimates for your project
- Our Solutions - Explore heat pump options for your industry
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