The Ministry of Coal has welcomed the landmark decisions taken at the 56th meeting of the GST Council in New Delhi, which have introduced significant changes to the taxation structure of the coal sector. These reforms are being hailed as a transformative step towards Aatmanirbhar Bharat in Coal, benefiting both producers and consumers.
Key decisions from the meeting include the removal of the ₹400 per tonne GST Compensation Cess on coal and an increase in the GST rate from 5% to 18%.
The impact of these reforms is substantial. Coal grades G6 to G17 will see a reduction in overall tax burden ranging from ₹13.40 per tonne to ₹329.61 per tonne. For the power sector, the average reduction is around ₹260 per tonne, translating into a decrease of 17–18 paise per kWh in generation costs.
Previously, the flat Compensation Cess disproportionately affected low-quality coal, creating tax disparities. For example, G-11 non-coking coal, produced in the largest quantity by Coal India Limited, faced a tax incidence of 65.85% compared to 35.64% for G2 coal. With the cess removed, tax incidence is now uniform at 39.81% across all grades, ensuring equitable treatment.
The reform also strengthens India’s self-reliance and reduces coal imports, as high gross calorific value imported coal was previously cheaper than domestic low-grade coal due to the flat cess. Raising GST to 18% addresses the inverted duty anomaly, where input services attracted higher GST than the coal output, leading to unutilized tax credits. The reforms now allow coal companies to use these credits, releasing blocked liquidity and improving financial stability.
Despite the GST rate hike, the overall tax incidence for final consumers has decreased, while distortions in the taxation structure have been corrected.
