Heat pump incentives in India: which government schemes actually apply to your factory

Accelerated depreciation on an industrial heat pump in India is 40 percent on the written down value, a rate that has applied since the Finance Act 2017. Heat pumps are named explicitly in the depreciation schedule, at Appendix I, item 8(ix) of the Income Tax Rules, under waste heat recovery equipment, so a buyer’s finance team does not have to argue the classification by analogy. The other instrument worth knowing about is ADEETIE, which runs to FY2027-28, carries a 5 percent interest subvention for micro and small enterprises and 3 percent for medium ones, and also funds the investment-grade energy audit and the detailed project report.

Which incentives actually apply to a mid-size Indian factory?

It is worth sorting the list before you read it. Most articles on this subject present eight instruments as though they carried equal weight, whereas for a plant of ordinary size only two of them make any real difference.

There are three groups. The first is tied to being a Designated Consumer or a notified obligated entity, and it holds PAT, energy saving certificates and the compliance arm of the Carbon Credit Trading Scheme. Most factories are not in that group. The second is tied to MSME status and a notified cluster, and it holds ADEETIE and the live state energy schemes. Many factories are in that group and have never checked. The third is open to every taxpaying entity, and the depreciation shield is the only material instrument in it.

Instrument	Who it applies to	What it gives	Live in 2026
Accelerated depreciation	Every taxpaying entity that buys the equipment	A tax shield on the accelerated portion of the written down value	Live
ADEETIE	MSMEs with a Udyam ID in a notified cluster	Interest subvention, plus a funded investment-grade audit, detailed project report, and monitoring and verification	Live to FY2027-28
PAT and energy saving certificates	Designated Consumers only	Tradable certificates against a notified target	Legacy, folding into the Carbon Credit Trading Scheme
CCTS compliance	Notified obligated sectors only	Tradable carbon credit certificates against a target	Live for those sectors only
CCTS offsets	The route a non-obligated plant would use	Credits for a verified reduction	Announced, not operational
State MSME energy schemes	MSMEs, in three states	Part of the audit cost and part of the cost of equipment the audit recommends	Live in Gujarat, Tamil Nadu and Maharashtra
Concessional energy-efficiency finance	Borrowers who can produce a detailed energy audit and a vetted project report	A lower cost of capital on the project loan	Live
PLI for White Goods	Component manufacturers, not factory buyers	Production-linked payments to the manufacturer	Live, and of no use to a buyer

Read the table as a filter, not a menu. The rows below the second are worth knowing mainly so you stop looking for them. The money in this decision is on the fuel side, not the scheme side, and what has happened to industrial gas prices moves the case far more than anything in this list.

How much depreciation can I actually claim on a heat pump?

You can claim 40 percent on the written down value, within the block of assets that the equipment falls into. This rate has been in force since the Finance Act 2017, and it is the rate that a return filed today would use.

Two caveats belong in the same breath, because they are what a finance head will ask.

The first is that 40 percent written down value is not a 40 percent subsidy. The benefit is a tax shield on the accelerated portion, so what the company receives is the deferred tax on that deduction, not two-fifths of the invoice. It is worth materially less than the headline rate reads. Any vendor arithmetic that treats the depreciation rate as a discount on the purchase price is wrong, and that is how a proposal loses credibility in the first finance review.

The second is that the interaction between the accelerated rate and the concessional corporate tax regime is a question for your own tax advisor, not for a vendor page. Take the schedule reference below to your advisor and ask it directly. The conversation is short once the classification is settled, and the classification is the part that is usually contested.

Indirect tax works as a mechanism, not an incentive. GST charged on the equipment is creditable for a manufacturer, so it sits in working capital and never becomes a cost, while depreciation delivers a tax shield and no cash at all. Neither is a subsidy, and both get modelled in the direction that flatters the project more often than not.

Are heat pumps actually named in the tax schedule, or is this an interpretation?

They are named explicitly. The entry appears in the schedule itself, so nothing has to be inferred from a general category.

Income Tax Rules 1962, Appendix I, Table Part A, Machinery and Plant, item 8(ix) covers energy saving devices. Under it sits a sub-heading for waste heat recovery equipment, and the entry reads: economisers and feed water heaters; recuperators and air pre-heaters; heat pumps; thermal energy wheel.

Attribute	Detail
Schedule reference	Income Tax Rules 1962, Appendix I, Table Part A, Machinery and Plant, item 8(ix)
Heading	Energy saving devices, sub-heading Waste heat recovery equipment
Entry	(a) Economisers and feed water heaters (b) Recuperators and air pre-heaters (c) Heat pumps (d) Thermal energy wheel
Rate	40 percent on the written down value

Item (c) is the whole point. A buyer’s chartered accountant does not have to construct an argument that a heat pump is an energy saving device by analogy with something else on the list. It is on the list by name.

Eligibility here follows the equipment class in the schedule. It does not follow a star rating, a label or an efficiency certificate, and any page telling you otherwise has confused industrial plant with domestic appliances.

What is ADEETIE and does it cover the sector I am in?

ADEETIE, the scheme for Assistance for Deployment of Energy Efficient Technologies in Industries and Establishments, is run by the Ministry of Power with BEE, through a portal operated by EESL. For a plant too small for PAT and too large to ignore its energy bill, it is the most useful live instrument on the list above.

Attribute	Detail
Owner	Ministry of Power with BEE, portal run by EESL
Period	FY2025-26 to FY2027-28
Interest subvention	5 percent for micro and small enterprises, 3 percent for medium
What else it funds	The investment-grade energy audit, the detailed project report, and monitoring and verification
Coverage	60 clusters across 14 sectors
Eligibility	An MSME with a Udyam ID in a notified cluster
Condition	Demonstrate 10 percent energy saving from the technology installed

Five of the 14 covered sectors are ones where process heat below the steam range is a real load: chemical, food processing, pharma, paper and textile.

The subvention is the part that gets quoted, and it is the smaller half of the scheme. Funding the investment-grade audit and the project report matters more, because it attacks the barrier that actually stops these projects: the finance function cannot evaluate a thermal proposal on its own, so it does not act on one.

That design has a consequence worth understanding before you approach anybody. The scheme pays an empanelled third-party auditor to produce the audit and to write the project report that specifies the technology. For an MSME, the technology choice is therefore often settled inside the audit, well before a purchase order exists, and it is the auditor who applies the scheme’s eligible technology list, not the buyer. If you are working through this route, the conversation to have early is with the auditor who will write your report, not with a supplier.

One note to keep the section in proportion. Around 71 percent of the funds available under TEQUP, the predecessor scheme, went unused. Indian MSMEs do not convert available subsidy into adoption on their own. A subsidy is a reason to start the conversation, not a reason to buy.

Does the state my plant sits in matter more than any subsidy?

Usually, yes. The landed price of industrial electricity varies more across Indian states than any capped equipment subsidy is worth, and it is the number a heat pump case actually runs on, every hour for the life of the asset.

State and licensee	Category	Energy charge	Demand charge	Landed
Maharashtra, MSEDCL	HT-I	₹8.44 per kVAh	₹650 per kVA per month	Add duty and any time-of-day adjustment
Gujarat, GUVNL	HT-I	₹4.30 per unit	Not separately verified	₹7.50 to ₹8.50 once FPPPA, demand charges and duty are added
Tamil Nadu, TANGEDCO	HT industrial	₹7.50 per kWh	₹608 per kVA per month	Plus 5 percent electricity tax
Karnataka, BESCOM and the other ESCOMs	HT-2(a)	₹6.70 per unit plus 35 paise surcharge	₹365 per kVA per month	About ₹7.05 before duty
Uttar Pradesh, UPPCL	LMV-6, Small and Medium Power	₹9.02 per unit average billing rate	Not verified	Already all-in

Two rows carry conditions that change what they mean. The Uttar Pradesh figure is the LMV-6 Small and Medium Power category, not a large HT industrial tariff, so it is not the rate a big plant in that state would pay. And Maharashtra bills HT-I per kVAh rather than per kWh, so a plant running poor power factor pays more per useful unit than ₹8.44 suggests; that figure is a kVAh rate and should never be carried into a per-kWh calculation as though the two were the same.

The Maharashtra row holds one more fact, and it runs against what most buyers assume. The regulator has approved a declining HT-I path, from ₹8.44 per kVAh in FY2026-27 to ₹7.45 by FY2029-30. A five-year approved reduction in the price of the input a heat pump runs on, recorded in a public tariff order, is worth more to a fifteen-year asset than any scheme above it on this page, and it is the opposite of the assumption that electricity in India only ever gets dearer.

Gujarat readers have one more line to put in the model. A cross-subsidy surcharge of ₹1.33 per kWh for FY2026-27, and wheeling at ₹0.2352 per unit with 6.5 percent losses, apply to any open-access or captive-solar arrangement sitting alongside the machine. Both are large enough to move the answer and both are routinely forgotten.

Do PAT and energy saving certificates apply to my plant?

For most plants they almost certainly do not apply, and it is far better to establish this at the outset than after a month of reading.

PAT applies to Designated Consumers, and the threshold is 30,000 MTOE of annual energy consumption for most sectors. That is a very large plant. A mid-size paint, chemical, food or pharmaceutical unit is not close to it, and if nobody at your company has ever been legally required to appoint a certified energy manager, you are not a Designated Consumer.

PAT is also being folded into the Carbon Credit Trading Scheme as its compliance segment, so it is winding down. Content that still presents energy saving certificates as a way for a mid-market factory to fund equipment is describing a mechanism that never applied to that factory and is now being retired.

Can I monetise carbon credits from a heat pump?

For most plants, this is not possible at present.

CCTS compliance applies only to notified sectors, and most industries a heat pump serves sit outside that perimeter. The offset mechanism, which is the route a non-obligated plant would have to use, is announced rather than operational. So there is no carbon revenue to put in the model, and a proposal that includes one is carrying a number that cannot be collected.

Document the project properly anyway: a defensible baseline of what the displaced fuel actually consumed, metering on the new plant, and a stated measurement method. That documentation is what would make any future claim possible, and it is what an energy manager needs whether or not a credit ever materialises.

What state schemes exist, and are they still live?

Three states currently run something usable. The names of these instruments have changed over time, however, so any page that cites the older policies is pointing you towards something that has since lapsed.

In Gujarat, the energy and water conservation assistance now sits under the Aatmanirbhar Gujarat Scheme for Assistance to MSMEs. It reimburses part of the cost of an energy audit and part of the cost of equipment the audit recommends, it is open to MSMEs only, and the claim is tied to the audit rather than to the invoice.

Tamil Nadu’s PEACE scheme has the same shape: MSME only, audit-led, with the audit carried out by an empanelled or accredited auditor and the equipment claim following the audit’s recommendation. Because it is audit-led it interacts directly with the ADEETIE point above, and the same practical conclusion applies. The auditor is the person whose report decides what gets specified.

Maharashtra’s current industrial policy replaced PSI 2019. Its benefits depend on the area category, not on the technology, so what matters is where you build and not what you install. It suits a greenfield plant or an expansion; a utility retrofit gets little out of it.

Is financing a better lever than a subsidy?

For most mid-market buyers it is. Financing changes the way a project gets approved, whereas a subsidy only changes what the project costs, and rarely by a margin large enough to matter.

Incentives improve a good payback. They do not create one. Against gas, LPG, furnace oil and diesel the breakeven COP for an industrial heat pump is 1.0 to 1.2, which means the running-cost case either stands on its own arithmetic or it does not stand at all, and no scheme on this page closes a gap that size. Against coal and biomass the argument is compliance, air quality, labour and customer audit rather than fuel cost, and no subsidy changes that either. The worked comparison against a boiler is where the payback itself is calculated.

The two levers that actually move a deal are the depreciation shield and access to concessional energy-efficiency finance. Concessional lending for energy efficiency is available in India, and it is gated on a detailed energy audit by an empanelled auditor and a project report vetted by the lender’s energy efficiency cell. That gate is also the reason the funded-audit provisions matter more than a capped equipment subsidy: they produce the document the lender requires.

Where the obstacle is not the payback but getting any capital sanction at all, Tetra Heat Pump also offers a shared savings, or ESCO, arrangement in which the supplier funds and installs the system and is paid from the savings it produces, on terms settled project by project.

The failure mode this addresses is not the one people expect. The documented pattern in Indian industry is not that the finance function rejects energy efficiency proposals. It is that the finance department is not equipped to evaluate a thermal intervention technically, so approvals sit. Buyers say they want a payback of 1 to 3 years; the realised payback across 224 Indian MSMEs in a World Bank study was 44 months. Treat the stated preference as a screening filter, not a hurdle rate, and treat the finance function’s ability to audit your numbers unaided as the real gate. A clear ROI method they can check line by line does more for a proposal than any scheme.

What does a heat pump avoid that no scheme pays for?

It avoids the recurring cost of running a registered boiler. This is a genuine advantage over steam, and it appears in almost no vendor comparison.

Below 100°C a hot water loop is not a registered boiler under the Indian Boiler Regulations. Registration turns on temperature and pressure, not on the technology, and below that line the equipment is a hot water generator. What falls away with the registration is not the statutory fee, which is small enough that leading with it would be unserious. It is the operating burden.

Three parts of that burden cost real money every year. A registered boiler needs a certified attendant on every shift, with relief cover, and the rules on who may relieve whom are strict. Replacing an attendant who leaves is gated by an examination calendar rather than by the labour market, an availability risk most plants discover only once. And the annual inspection requires a shutdown, with the production lost in it, every year for the life of the plant. The Boilers Act 2025 has since tightened accredited training and certification for boiler operators, which makes running one more onerous, not less.

The caveat matters here, because a blanket claim would be wrong and the customer would be the one paying for it. Above 100°C the position depends on vessel design and volume and on the view of the state Boiler Directorate, so this is not a blanket exemption at every duty. Scope it to the loop you are actually converting. Tetra Heat Pump, a product of Promethean Energy Private Limited, builds air source, water source and cascade configurations for industrial process heat, and where a duty can be met with a hot water loop held below 100°C, that loop sits outside boiler registration entirely; the equipment and how it integrates is described here.

What to do next, in order

There are five steps, and they should be taken in this sequence, because each one narrows down the next.

1. Establish whether your plant is a Designated Consumer. If it is not, everything in the PAT and compliance-carbon family drops off your list.
2. Establish your Udyam registration status and whether your location falls in a notified cluster. That determines whether the MSME instruments, including the funded audit route, are open to your sector at all.
3. Get the delivered cost of heat from your own fuel bill, not from a published average. You need your contracted fuel rate, the calorific value on your invoice, your boiler’s efficiency and your landed electricity tariff including demand charges and duty.
4. Run the arithmetic before you run the scheme search. The calculator will do the division; if the running-cost case does not stand without a subsidy, no subsidy on this page will rescue it.
5. Take the schedule reference from this page to your tax advisor and settle the depreciation treatment for your entity, along with how your corporate tax regime affects it.

If the arithmetic works and the next question is about your own load profile instead of schemes, you can get that started here.

Disclaimer. Government schemes and rates change. This page describes the position as at August 2026, from publicly available sources. Verify current eligibility, rates and application procedure with BEE, the relevant state portal and the tax authorities before committing capital, and take tax and legal advice specific to your own entity.