New Delhi, Sep 22 The GST 2.0 reforms have brought significant changes to the taxation structure of the coal sector, which will benefit both producers and consumers of the fossil fuel, according to a statement issued by the Ministry of Coal on Monday.
The GST reforms have eliminated the Rs 400 per tonne compensation cess previously levied on coal, while the GST rate on coal has been raised from 5 per cent to 18 per cent. The overall effect of the reforms, despite the increase in GST rates from 5 per cent to 18 per cent, is a lower tax incidence for final consumers, combined with a correction of the inverted duty structure that releases liquidity, eliminates distortions, and prevents large accounting losses for coal producers, the statement said.
The impact of the new reform on coal pricing and the power sector is a substantial reduction in overall tax burden, with coal grades G6 to G17 seeing decreases in the range of Rs 13.40 per tonne to Rs 329.61 per tonne. For the power sector, the average reduction is around Rs 260 per tonne, translating into a cut of 17–18 paise per kWh in the cost of generation, the statement points out.
The rationalisation of tax burden across coal grades ensures equitable treatment, replacing the earlier flat rate of Rs 400 per tonne Compensation Cess, which disproportionately affected low-quality and low-priced coal. For instance, G-11 non-coking coal produced in the largest quantity by Coal India Limited had a tax incidence of 65.85 per cent compared to 35.64 per cent for G2 coal. With the cess removed, tax incidence across all categories has now been aligned to a uniform 39.81 per cent, the statement points out.
The boost to Aatmanirbhar Bharat and import substitution is evident as the removal of the cess levels the playing field, eliminating the earlier scenario where the flat rate of GST Compensation Cess at Rs 400 per tonne resulted in the landing cost of high gross calorific value imported coal being lower than that of Indian low-grade coal. This reform strengthens India’s self-reliance and curbs unnecessary coal imports.
The reforms have also removed the Inverted Duty Anomaly by raising the GST rate on coal to 18 per cent. Earlier, coal attracted 5 per cent GST while input services used by coal companies attracted higher GST rates, normally at 18 per cent. This disparity led to a huge accumulation of unutilised tax credit in the books of coal companies due to their lower output GST liability.
With no provision for refund, this amount kept increasing, blocking valuable funds. Now, the unutilised amount can be used over the coming years to pay off GST tax liability, leading to the release of blocked liquidity and helping coal companies mitigate losses due to the accumulation of unutilised GST credit and enhancing financial stability.
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