As India celebrates Azadi Ka Amrit Mahotsav, the Government has taken a bold and transformative step toward achieving Aatmanirbharta (self-reliance) in the coal sector. The Ministry of Coal has welcomed the far-reaching decisions made during the 56th GST Council meeting in New Delhi, which introduce a new, rationalized taxation framework for coal—balancing the needs of producers, consumers, and the power sector.
Key GST Reforms in Coal Sector
Two landmark decisions were taken by the GST Council:
- Removal of the ₹400 per tonne GST Compensation Cess on coal
- Increase in the GST rate on coal from 5% to 18%
While the increase in GST might appear steep at first glance, the removal of the cess has created a net positive outcome—reducing the effective tax burden across various grades of coal and bringing uniformity to the taxation system.
Fairer Pricing, Lower Power Costs
Under the previous regime, the ₹400 per tonne cess disproportionately impacted lower-grade coal, which is more commonly used by domestic industries and power generators. For example, G-11 non-coking coal, the most widely used grade by Coal India Limited, had a tax incidence of over 65%, while higher-grade coal (G2) had only around 35%. This created distortions and disincentivized the use of Indian low-grade coal.
With the cess now removed and a uniform 18% GST applied, tax incidence has been equalized to around 39.81% across all grades—making the system more transparent and equitable.
For the power sector, the impact is substantial. The reforms result in a reduction of around ₹260 per tonne of coal, bringing down the cost of electricity generation by 17–18 paise per kWh. This is expected to benefit both industrial consumers and households, easing input costs and stabilizing tariffs.
Boosting Aatmanirbhar Bharat & Cutting Coal Imports
One of the key advantages of this reform is its direct contribution to import substitution. Previously, the cess made Indian low-grade coal more expensive than imported high-grade coal—creating an imbalance that discouraged domestic procurement. The new pricing structure levels the playing field, encouraging industries to rely more on Indian coal, thus strengthening energy security and promoting Aatmanirbhar Bharat.
Resolving the Inverted Duty Structure
Coal companies had long faced challenges due to the inverted duty structure—paying 18% GST on input services but collecting only 5% on coal sales. This led to a large build-up of unutilized input tax credit, locking up significant working capital.
By increasing the output GST rate to 18%, companies can now utilize existing tax credits, improving cash flow and strengthening financial health. This correction also reduces accounting losses and provides much-needed liquidity to state-owned and private coal producers alike.
Conclusion
These GST reforms represent a strategic and balanced approach—one that aligns taxation with economic goals, encourages domestic production, ensures fair pricing, and supports the energy needs of a growing nation. As India moves forward under the banner of Azadi Ka Amrit Mahotsav, these changes mark a defining step in realizing the vision of Aatmanirbhar Bharat in the coal sector.