Key Decisions of the GST Council
- Removal of GST Compensation Cess: The ₹400 per tonne cess previously levied on coal has been eliminated.
- Increase in GST Rate: The GST on coal has been raised from 5% to 18% to correct the inverted duty structure.
The reforms result in a substantial reduction in overall tax burden, particularly for coal grades G6 to G17, with decreases ranging from ₹13.40 to ₹329.61 per tonne. For the power sector, this translates to an average cut of around ₹260 per tonne, reducing generation costs by 17–18 paise per kWh. This rationalization ensures equitable taxation across coal grades, replacing the flat cess that disproportionately affected low-grade coal.
Boosting Aatmanirbhar Bharat and Import Substitution
The removal of the flat ₹400 cess levels the playing field, as earlier high gross calorific value imported coal had a lower landing cost than Indian low-grade coal. With the cess gone, domestic coal becomes more competitive, supporting self-reliance and reducing unnecessary imports. This measure strengthens India’s AatmNirbharta in energy resources.
Correcting the Inverted Duty Structure
Previously, coal attracted 5% GST while input services used by coal companies faced 18% GST, leading to an accumulation of unutilized tax credit. With the GST now at 18%, companies can utilize these credits to offset liabilities, releasing blocked liquidity and improving financial stability. This correction ensures a more streamlined taxation system, reduces distortions, and prevents large accounting losses for coal producers.
Balanced Reform Benefiting All Stakeholders
Despite the GST hike, the net tax incidence for final consumers is lower, while coal producers regain liquidity and the inverted duty anomaly is resolved. These reforms align with the vision of Aatmanirbhar Bharat, ensuring that the coal sector supports domestic energy needs efficiently, strengthens financial stability, and maintains affordable power generation costs.