GST Reforms To Lower Tax Burden On Coal, Cut Power Generation Cost, Says Government

The government on Thursday said the latest round of GST reforms will ease the tax burden on coal and bring down the cost of power generation, a move aimed at rationalising levies and supporting domestic producers.

Until now, coal attracted 5% GST along with a flat Rs 400-per-tonne compensation cess. The GST Council has removed the cess and raised GST on coal to 18%. According to the coal ministry, this restructuring reduces the overall tax burden on coal grades G6 to G17 by Rs 13.40 to Rs 329.61 per tonne.

"The average reduction for the power sector is Rs 260 per tonne, which will reduce the cost of generation by 17–18 paise per kWh," the ministry said in a statement.

Earlier, a flat rate of Rs 400 per tonne was imposed as GST compensation cess without considering coal quality. This disproportionately affected low-quality and low-priced coal. For example, G-11 non-coking coal, which accounts for much of Coal India Ltd.'s output, faced a tax incidence of nearly 66%, compared with 36% for higher-grade G2 coal. With the cess gone, tax incidence has been rationalised to a uniform 39.81% across all categories.

Officials said the reforms also help curb imports by removing the pricing advantage enjoyed by higher-calorific imported coal. "The removal of cess levels the playing field, strengthening India's self-reliance and curbing unnecessary imports," the ministry noted.

The GST hike also corrects an inverted duty structure. Previously, coal companies paid higher GST on input services (typically 18%) but only 5% on output, leaving large unutilised tax credits that blocked liquidity and inflated accounting losses. With output GST now at 18%, these credits can be set off, freeing up funds.

"The decisions of the GST Council represent a balanced reform that benefits both coal producers and consumers alike," the statement added.

(With inputs from PTI).