New Delhi : The Goods and Services Tax (GST) Council has implemented major changes to the taxation of the coal sector by removing the compensation cess, the Ministry of Coal announced on Thursday.
Previously, coal attracted a 5 per cent GST along with a compensation cess of Rs 400 per ton. The Council has now recommended eliminating the GST compensation cess and increasing the GST rate on coal from 5 per cent to 18 per cent.
“The new reforms reduce the overall tax on coal grades G6 to G17, which ranges from Rs 13.40 per ton to Rs 329.61 per ton. The average reduction for the power sector is Rs 260 per ton, which will lower the cost of generation by 17 to 18 paise/kWh,” the ministry said.
The reforms will also rationalise the tax burden on coal in line with its pricing.
Earlier, a flat rate of Rs 400 per ton was imposed as GST compensation cess without considering coal quality, which disproportionately affected low-quality and low-priced coal. For instance, G-11 non-coking coal, the majority produced by Coal India Limited, faced a tax incidence of around 65.85 per cent compared to G2 coal, where it was 35.64 per cent.
With the cess removed, the government has rationalised the tax incidence across all coal categories to a uniform rate of 39.81 per cent.
Even with the GST rate rising from 5 per cent to 18 per cent, the reforms reduce the overall tax burden on the final consumer due to the removal of the GST compensation cess.
The elimination of the cess, rationalisation of duties, and correction of the inverted structure will also release liquidity, remove distortions, and prevent significant accounting losses for coal producers, the ministry noted.
The GST Council’s decisions represent a balanced reform that benefits both coal producers and consumers alike.
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