On September 22, 2025, the Ministry of Coal announced GST reforms in the coal sector, a move towards AatmNirbharta in Coal, following the 56th GST Council meeting. Key decisions include:
* Removal of the ₹400 per tonne GST Compensation Cess on coal.
* Increase in the GST rate on coal from 5% to 18%.
These reforms result in a reduced overall tax burden, with coal grades G6 to G17 experiencing decreases ranging from ₹13.40 to ₹329.61 per tonne. The power sector sees an average reduction of around ₹260 per tonne, translating to a reduction of 17–18 paise per kWh in generation costs.
The changes rationalize tax burden across coal grades, replacing the ₹400 per tonne Compensation Cess, which disproportionately affected low-quality and low-priced coal. It is estimated the tax incidence across all categories has now been aligned to a uniform 39.81%.
The increase in GST rate on coal to 18% eliminates the Inverted Duty Anomaly. The earlier 5% GST attracted while input services used by coal companies attracted higher GST rates, normally at 18% created a huge accumulation of unutilized tax credit. The unutilized amount can be used over the coming years to pay off GST tax liability.
The reforms will mitigate losses, reduce distortion, and prevent large accounting losses for coal producers while strengthening India's self-reliance. Contact: Shuhaib T/Durgesh Kumar. Release ID: 2169438.
Key Entities Referenced
GST Council: The council that made decisions relating to GST on coal, specifically regarding the removal of compensation cess and increase in GST rate.
AatmNirbharta in Coal: The initiative to promote self-reliance in the coal sector, which the reforms aim to support.
Ministry of Coal: The primary ministry overseeing the changes and welcoming the GST reforms in the coal sector.
GST Compensation Cess: Tax on coal that was eliminated by the GST Council.
Ministry of Coal
GST reform in Coal Sector – A Transformative Step
Towards AatmNirbharta in Coal
Posted On: 22 SEP 2025 11:45AM by PIB Delhi
The Ministry of Coal has welcomed the landmark decisions taken at the 56th meeting of the GST Council
held in New Delhi, which have brought significant changes to the taxation structure of the coal sector. These
reforms mark a transformative step towards AatmNirbharta in Coal and represent a balanced approach that
benefits both coal producers and consumers alike.
Key Decisions of the 56th GST Council Meeting
Removal of GST Compensation Cess: The Council has eliminated the ₹400 per tonne
(cid:108)
Compensation Cess previously levied on coal.
Increase in GST Rate on Coal: The GST rate on coal has been raised from 5% to 18%.
(cid:108)
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 ₹13.40 per tonne to ₹329.61 per tonne.
For the power sector, the average reduction is around ₹260 per tonne, translating into a cut of 17–18 paise per
kWh in the cost of generation.
The rationalization of tax burden across coal grades ensures equitable treatment, replacing the earlier flat rate
of ₹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% compared to 35.64% for G2 coal. With the cess removed, tax incidence across all categories has now
been aligned to a uniform 39.81%.
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 ₹400 per tonne
resulted in the landing cost of high gross calorific value imported coal was 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%. Earlier,
coal attracted 5% GST while input services used by coal companies attracted higher GST rates, normally at
18%. This disparity led to a huge accumulation of unutilized 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 unutilized
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 unutilized GST credit and
enhances financial stability.
The overall effect of the reforms, despite the increase in GST rates from 5% to 18%, 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 decisions of the GST Council are expected to positively impact the coal sector by strengthening India’s
self-reliance, supporting producers, benefiting consumers and aligning with the vision of Aatmanirbhar
Bharat, making this a truly balanced reform.
****
Shuhaib T/Durgesh Kumar(Release ID: 2169438)