Coal GST Reforms: Cess Removed, Rate Raised To 18% To Promote Domestic Production

(MENAFN- KNN India) New Delhi, Sep 22 (KNN) The Ministry of Coal welcomed the revised GST framework, under which the Rs 400-per-tonne GST Compensation Cess on coal has been removed and the GST rate increased from 5 percent to 18 percent.

Officials said the change will lower overall taxation across coal grades, with reductions ranging from Rs 13.40 per tonne to Rs 329.61 per tonne for grades G6 to G17.

For the power sector, the average cost reduction is estimated at Rs 260 per tonne, translating into a 17–18 paise decrease per kilowatt-hour in generation costs.

The reform addresses previous disparities in tax incidence. Lower-quality coal, such as G-11 non-coking coal - the largest share of Coal India Limited's output - had faced a tax incidence of 65.85 percent, compared with 35.64 percent for G-2 coal.

Removal of the cess has rationalised the incidence to a uniform 39.81 percent across all categories.

Officials noted that the earlier cess made imported high-calorific-value coal more competitive than domestic low-grade coal, affecting the viability of local production.

The new structure is expected to promote domestic coal use, strengthen import substitution, and reduce reliance on foreign supplies.

Raising the GST rate to 18 percent also resolves the inverted duty structure, under which coal companies were taxed at 5 percent while most input services carried 18 percent, leading to blocked credits and liquidity challenges.

The revised system allows companies to utilise accumulated credits, improving financial stability.

Despite the higher GST rate, officials emphasised that the overall outcome reduces the tax burden for end-users, eliminates market distortions, and enhances sector efficiency, benefiting both producers and consumers.

(KNN Bureau)

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