The Central Government on Friday elaborated on the implications of the Goods and Services Tax (GST) reforms for the coal sector, following queries raised in Parliament regarding changes implemented at the 56th GST Council meeting.
According to the government’s response, the GST reforms aim to rationalise the tax structure in the coal industry and deliver relief in power generation costs. The changes follow decisions taken by the GST Council to overhaul the indirect tax regime, particularly for coal and related products.
Key measures under the reform include the removal of the GST Compensation Cess on coal and an increase in the GST rate from 5% to 18%. Officials said that although the headline GST rate has increased, the overall tax burden on many grades of coal has declined compared with the earlier regime that combined a 5% GST with a flat ₹400 per tonne cess.
The revised structure has helped rationalise the effective tax burden across coal grades, which had previously led to disproportionate taxation for lower-priced and lower-grade coal. This rationalisation has translated into an average reduction of around ₹260 per tonne for coal supplied to the power sector, which the government said is expected to lower electricity generation costs by approximately 17–18 paise per kilowatt-hour.
The government also emphasised that the experience of an “inverted duty structure” — where input services attracted higher GST than the output product — has been addressed through the reforms. With the rate aligned closer to input tax rates, coal companies may now better utilise input tax credits, potentially releasing blocked liquidity.
Officials said the revised regime aims to benefit both coal producers and end users, while supporting overall efforts to strengthen domestic coal competitiveness and reduce dependency on imports.
