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New GST reforms to slash tax on coal, reduce power generation cost: Coal Ministry
Sep-12-2025

The coal ministry has said that the GST reforms will bring down the overall tax on coal and reduce the cost of power generation. Earlier, coal attracted 5% GST along with a compensation cess of Rs 400 per tonne. Recently, the GST Council recommended the removal of the GST Compensation cess and an increase in the GST rate on coal from 5% to 18%. Further, the new reforms bring down the overall tax on coal grades G6 to G17, which is in the range of Rs 13.40 per tonne to Rs 329.61 per tonne. This will lead to an average reduction of Rs 260 per tonne for the power sector, further reducing the cost of generation by 17 to 18 paise/kWh.

Moreover, the reforms will help in the rationalisation of tax burden on coal vis-a-vis its pricing. 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. With the cess removed, tax incidence across all categories of coal has now been rationalised to a uniform rate of 39.81%. Besides, the reform will help in promoting self-reliance by import substitution since the landing cost of high gross calorific value imported coal was lower compared to domestic low-grade coal, earlier, placing the domestic coal at a disadvantage. The coal ministry added that the removal of cess will level the playing field, strengthen India's self-reliance and curb unnecessary imports.

The GST reforms also remove the inverted duty anomaly by raising the GST rate to 18%. Earlier, coal attracted 5% GST but the input services used by coal companies used to attract higher GST rates, normally at 18%. This meant that a huge amount of unutilised tax credit was standing in the books of these coal companies as output GST liability was lower. Since, the outward GST liability of coal companies was lower as compared to GST paid on input services, this amount was continuously increasing and with no refund of this amount, this implied blockage of funds of coal companies. Now this unutilised amount can be used for some years to pay off the GST tax liability, leading to release of blocked liquidity. This will also help in staving off the loss of coal companies due to the accumulation of such unutilised GST credit.

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