India may cut its import taxes on solar panels in half and is seeking a rollback in goods and services taxes on the devices to make up a shortfall in local output amid rising demand for renewable energy, three government sources said.

India's renewable energy ministry has held talks with the finance ministry to approve its request to cut the import tax on solar panels from 40% to 20%, said the three sources, who declined to be identified as the decision has not yet been finalised.

Also, the two ministries may make a recommendation to India's Good and Services Tax Council to lower the goods and services tax (GST) on solar panels to 5%, from the 12% imposed in 2021, the sources said.

India imposed the 40% solar panel import tax in April 2022 and a 25% tax on solar cells to discourage Chinese imports, in line with Prime Minister Narendra Modi's ambitious plan to become more self-reliant and cut emissions by scaling up renewable energy generation.

"However, domestic capacity is falling short ... imports are required to fill in the gap," said one of the sources.

The proposal comes as Modi looks at achieving a target of 365 gigawatts (GW) of installed solar capacity by 2031-32, part of a green energy push that extends from promoting electric cars to sustainable aviation fuel.

India's finance ministry did not immediately respond to emails seeking comment. A spokesperson for the renewable energy ministry said a comment would be made as soon as possible. (Reporting by Sarita Chaganti Singh and Nikunj Ohri; Editing by Aditya Kalra and Christian Schmollinger)