**Summary:**
The 56th GST Council, convened in New Delhi, has approved significant changes to the Goods and Services Tax (GST) structure impacting the coal sector, effective September 11, 2025. The key reform is the removal of the GST compensation cess of Rs. 400 per ton on coal, coupled with an increase in the GST rate from 5% to 18%.
These changes are projected to lower the overall tax burden on coal grades G6 to G17, resulting in reductions ranging from Rs. 13.40 to Rs. 329.61 per ton. The power sector is expected to benefit from an average reduction of Rs. 260 per ton, translating to a decrease in power generation costs of approximately 17 to 18 paise per kilowatt-hour (kWh).
The reforms address previous tax imbalances where a flat GST compensation cess disproportionately affected low-quality, low-priced coal. For instance, the tax incidence on G11 non-coking coal, a major product of Coal India Limited, was previously 65.85% compared to 35.64% on G2 coal. With the removal of the cess, a uniform tax incidence of 39.81% across all coal categories has been established.
Furthermore, these changes are anticipated to promote "Aatmanirbhar Bharat" (self-reliant India) by reducing the import of high Gross Calorific Value coal. The earlier cess structure made imported coal more competitive, disadvantaging domestic low-grade coal.
The reforms also rectify the inverted duty anomaly in the coal sector. Previously, the 5% GST rate on coal, while input services faced higher rates (typically 18%), led to the accumulation of unutilized tax credits for coal companies. This blockage of funds can now be alleviated as these credits can be used to offset future GST liabilities. This change is expected to improve liquidity and prevent financial losses for coal producers.
In conclusion, despite the increase in the GST rate, the removal of the GST compensation cess is expected to lower the overall tax incidence for consumers. The rationalization of duties, correction of the inverted duty structure, and the resulting liquidity release are poised to benefit both coal producers and consumers.
**Contact:** Shuhaib T Durgesh Kumar, Press Information Bureau Delhi. Release ID: 2165754.
Key Entities Referenced
Ministry of Coal: The Indian government ministry responsible for the development and regulation of coal and lignite reserves in India.
GST Council: The Goods and Services Tax Council of India, a constitutional body responsible for making recommendations on issues related to GST.
New Delhi: The location of the 56th GST Council meeting, likely referring to New Delhi, Delhi, India.
GST: Goods and Services Tax, an indirect tax used in India on the supply of goods and services.
GST Compensation cess: A cess levied on certain goods and services to compensate states for any revenue losses arising from the implementation of GST.
Coal India Limited: An Indian government-owned coal mining and refining company.
Aatmanirbhar Bharat: A Hindi phrase meaning 'self-reliant India' is the vision of new India envisaged by the Hon'ble Prime Minister
Shuhaib TDurgesh Kumar: The name of the person or people mentioned at the end of the document.
Ministry of Coal
56th GST Council Decisions to Benefit both Coal
Producers and Consumers
Posted On: 11 SEP 2025 6:04PM by PIB Delhi
th
The 56 meeting of the GST Council held in New Delhi has brought significant changes to the
taxation structure of the Coal sector. Earlier, Coal attracted 5% GST along with a compensation
cess of Rs. 400 per ton. The Council has now recommended the removal of GST Compensation
cess and an increase in the GST rate on coal from 5% to 18%.
The new reforms reduce the overall tax on coal grades G6 to G17, which is in the range of Rs.13.40
per ton to Rs.329.61 per ton. The average reduction for power sector is Rs.260 per ton, which will
reduce the cost of generation by 17 to 18 paise /kWh.
The reforms will also help in rationalization of tax burden on coal vis-à-vis its pricing. Previously, 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. For example, G-11 non-
coking coal, which is the majority coal produced by Coal India Limited, had a tax incidence of
around of 65.85% compared to G2 coal where incidence was 35.64%. With the cess removed, tax
incidence across all categories of coal has now been rationalized to a uniform of 39.81%.
The reforms will also help in promoting Aatmanirbhar Bharat by import substitution. Earlier, due to
flat rate of GST compensation cess at Rs. 400/ton, landing cost of High Gross Calorific value
imported coal was lesser as compared to Indian Low-grade Coal. This used to place Indian Coal in
disadvantageous position. The removal of cess levels the playing field, strengthening India’s self-
reliance and curbing unnecessary imports.
The reforms also remove the Inverted Duty Anomaly by raising 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 huge amount of unutilized 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 unutilized amount can be used for some years to
pay of the GST tax liability, leading to release of blocked liquidity. This will also help in staving off
loss of coal companies due to accumulation of such unutilized GST credit.
Despite increase in GST Rates from 5% to 18%, the reforms will have lower overall tax incidence
on final consumer, due to removal of GST compensation Cess. Similarly, the removal of cess,
rationalization of duty, and correction of the inverted structure release liquidity, eliminate distortions,
and prevent large accounting losses for coal producers. The decisions of the GST council represent
a balanced reform that benefit both coal producers and consumers alike.
****
Shuhaib T/Durgesh Kumar
(Release ID: 2165754)