New Delhi : The GST 2.0 reforms have significantly changed the taxation structure of the coal sector, benefiting both producers and consumers, the Ministry of Coal said on Monday.
The reforms eliminated the Rs 400 per tonne compensation cess previously levied on coal. They also raised the GST rate on coal from 5 per cent to 18 per cent. Despite the rate hike, the reforms lower the overall tax burden on final consumers. They also correct the inverted duty structure, release liquidity, eliminate distortions, and prevent large accounting losses for coal producers.
The new reforms substantially reduce coal pricing for the power sector. Coal grades G6 to G17 now face tax reductions ranging from Rs 13.40 per tonne to Rs 329.61 per tonne. For the power sector, the average cut is around Rs 260 per tonne, translating into 17–18 paise per kWh savings in generation costs.
The rationalisation ensures equitable treatment across coal grades. Earlier, the flat Rs 400 per tonne compensation cess disproportionately affected low-quality coal. For example, G-11 non-coking coal, produced in the largest quantity by Coal India Limited, had a tax incidence of 65.85 per cent, while G2 coal faced only 35.64 per cent. With the cess removed, the tax incidence for all categories now aligns at a uniform 39.81 per cent.
The reforms boost Aatmanirbhar Bharat and promote import substitution. Removing the cess eliminates the earlier scenario where high gross calorific value imported coal had a lower landing cost than Indian low-grade coal. This move strengthens self-reliance and reduces unnecessary coal imports.
The GST reforms also remove the Inverted Duty Anomaly. Previously, coal attracted 5 per cent GST while input services for coal companies faced higher rates, normally 18 per cent. This disparity caused coal companies to accumulate unutilised tax credit due to lower output GST liability.
Previously, companies could not claim a refund, so the unutilised amount kept increasing, blocking valuable funds. Now, coal companies can apply this credit toward future GST liabilities. This release of blocked liquidity helps them mitigate losses and enhances financial stability.
Overall, GST 2.0 provides a major booster shot to the coal sector. It ensures fair taxation, strengthens domestic production, supports the power sector, and aligns with India’s broader energy security and economic growth objectives. By simplifying the tax structure and releasing liquidity, the reforms enable coal companies to operate efficiently while contributing to national self-reliance.
–IANS
