56th GST Council Decisions to
Benefit both Coal Producers and Consumers
GST
Council’s Coal Sector Reforms: Key Highlights
Tax
Structure Overhaul
·
GST Rate on Coal increased from 5%
to 18%
·
GST Compensation Cess of ₹400/ton removed
·
Net effect: Lower overall tax incidence,
especially for lower-grade coal
Impact on
Power Sector
·
Tax reduction on coal grades G6 to G17
ranges from ₹13.40 to ₹329.61 per ton
·
Average savings for power producers: ₹260/ton
·
Cost of electricity generation drops by 17–18
paise/kWh
Rationalization
of Tax Burden
·
Earlier flat cess disproportionately impacted low-grade
coal
o
Example: G11 coal had 65.85% tax incidence,
G2 coal had 35.64%
·
Now, uniform tax incidence of 39.81% across
all grades
Boost to
Aatmanirbhar Bharat
·
Removal of cess makes Indian coal more
competitive
·
Reduces reliance on high-grade imported coal
·
Encourages import substitution and
strengthens domestic self-reliance
Correction
of Inverted Duty Structure
·
Input services taxed at 18%, while coal was
taxed at 5%
·
Led to unutilized tax credits and blocked
liquidity
·
New structure allows coal companies to utilize
accumulated credits, improving cash flow
Benefits
to Producers & Consumers
·
Despite higher GST rate, overall tax burden is
lower
·
Coal producers gain liquidity, avoid
accounting losses
·
Consumers benefit from
reduced power costs and more efficient pricing
This reform is a textbook example of how tax policy
can be recalibrated to balance industrial efficiency, consumer affordability,
and national strategic goals. Want to explore how this might affect energy
pricing or industrial competitiveness in India?
The
56th 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.