The system is expected to reduce demand on the grid during peak times.
New electricity rules will allow for cuts in power tariffs of up to 20% during the day and increases of up to 20% during peak night hours, the power ministry said on Friday, in a move aimed at increasing the use of renewable energy.
The system is expected to reduce demand on the grid during peak times when many households crank up their use of airconditioning after work.
It will come into effect from April 2024 for commercial and industrial consumers and a year later for most other consumers except those in the agricultural sector.
"Since solar power is cheaper, the tariff during the solar hours will be less, so the consumer benefits," Power Minister RK Singh said in a statement.
"During non solar hours thermal and hydro power as well as gas based capacity is used - their costs are higher than that of solar power - this will be reflected in time-of-day tariff."
The move is expected to help work towards its target of achieving 65% of its energy capacity from non-fossil fuels by 2030 and net zero emissions by 2070.