The Ministry of Coal has welcomed the decisions taken at the 56th meeting of the GST Council, which revised the taxation structure for coal. Officials said the changes could reduce the tax burden on coal and have implications for the power sector.
Changes in GST and compensation cess
The Council removed the ₹400 per tonne GST Compensation Cess on coal and increased the GST rate from 5 per cent to 18 per cent. According to the ministry, these measures will lower the overall tax burden for coal grades G6 to G17, with reductions ranging from ₹13.40 per tonne to ₹329.61 per tonne. For the power sector, the average reduction is around ₹260 per tonne, translating to a cut of 17–18 paise per kilowatt-hour in generation costs.The changes also address a long-standing disparity in taxation. Earlier, low-quality coal carried a disproportionately high tax incidence. For example, G-11 non-coking coal produced in the largest quantity by Coal India Limited had a tax incidence of 65.85 per cent, compared to 35.64 per cent for G2 coal. Following the reforms, the tax rate across all categories has been aligned to 39.81 per cent.
Impact on coal industry and imports
Officials said the removal of the compensation cess is expected to support domestic coal production and reduce reliance on imports. Previously, the flat ₹400 per tonne cess made imported high-calorific coal comparatively cheaper than low-grade Indian coal. The reform is intended to make domestic coal more competitive and strengthen India’s self-reliance.The changes also correct the inverted duty structure, where coal was taxed at 5 per cent while input services faced 18 per cent GST. This had led to a build-up of unutilised tax credits for coal companies. With the reforms, companies can use these credits to offset future GST liabilities, releasing blocked liquidity and improving financial stability.
The Ministry of Coal said the reforms aim to balance the interests of producers and consumers, reduce distortions in taxation, and support the broader vision of Aatmanirbhar Bharat.
