How Does GST 2.0 Provide a Boost to the Coal Sector?

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How Does GST 2.0 Provide a Boost to the Coal Sector?

Synopsis

The recent implementation of GST 2.0 reforms is revolutionizing the coal sector's taxation framework. With reduced tax burdens and improved liquidity, both producers and consumers stand to gain significantly. This article explores the profound implications of these changes for India's coal industry and its economy.

Key Takeaways

  • GST 2.0 reforms eliminate the Rs 400 compensation cess.
  • The GST rate on coal rises from 5% to 18%.
  • Coal pricing sees significant reductions for various grades.
  • Enhanced liquidity for coal producers is expected.
  • The reforms support Aatmanirbhar Bharat initiatives.

New Delhi, Sep 22 (NationPress) The GST 2.0 reforms have led to transformative changes in the taxation framework of the coal industry, promising advantages for both producers and consumers of this fossil fuel, as stated by the Ministry of Coal on Monday.

These reforms have removed the Rs 400 per tonne compensation cess that was previously imposed on coal, while simultaneously increasing the GST rate on coal from 5 percent to 18 percent. Notably, despite the hike in GST rates, the overall tax burden for final consumers is reduced, correcting the inverted duty structure which enhances liquidity, eliminates distortions, and prevents significant accounting losses for coal producers, according to the statement.

The new reform's impact on coal pricing and the power sector is substantial, showcasing a considerable decrease in the overall tax burden, with coal grades ranging from G6 to G17 witnessing reductions from Rs 13.40 per tonne to Rs 329.61 per tonne. For the power sector, the average decrease is approximately Rs 260 per tonne, equating to a reduction of 17–18 paise per kWh in generation costs, as highlighted in the statement.

Furthermore, the rationalization of the tax burden across different coal grades ensures fair treatment, replacing the previous flat rate of Rs 400 per tonne Compensation Cess, which unduly impacted low-quality and low-priced coal. For example, the tax incidence for G-11 non-coking coal, which is produced in the highest quantities by Coal India Limited, was 65.85 percent, compared to 35.64 percent for G2 coal. With the cess now removed, the tax incidence across all categories has been aligned to a uniform 39.81 percent, the statement notes.

This reform significantly supports Aatmanirbhar Bharat and reduces import reliance by eliminating the cess, which previously distorted the competitive landscape. The prior flat GST Compensation Cess of Rs 400 per tonne resulted in the landing cost of high gross calorific value imported coal being lower than that of Indian low-grade coal. This adjustment strengthens India’s self-reliance while curbing unnecessary coal imports.

Additionally, the reforms have addressed the Inverted Duty Anomaly by raising the GST rate on coal to 18 percent. Previously, coal attracted 5 percent GST while the input services utilized by coal companies were subject to higher GST rates, typically at 18 percent. This discrepancy caused a significant accumulation of unutilized tax credits for coal companies due to their lower output GST liabilities.

Without provisions for refunds, this amount kept escalating, blocking much-needed funds. Now, this unutilized amount can be utilized over the coming years to settle GST tax liabilities, leading to the release of blocked liquidity and enabling coal companies to mitigate losses due to the accumulation of unutilized GST credits, thereby enhancing their financial stability.

Point of View

Our stance is aligned with the national interest. The GST 2.0 reforms in the coal sector not only promise economic benefits but also reflect a commitment to enhancing India's self-sufficiency and reducing reliance on imports. This strategic move positions India favorably in the global market while ensuring fair treatment across coal grades, ultimately serving the interests of both producers and consumers.
NationPress
22/09/2025

Frequently Asked Questions

What are the main changes introduced by GST 2.0 in the coal sector?
The major changes include the removal of the Rs 400 per tonne compensation cess and an increase in the GST rate on coal from 5% to 18%. These reforms aim to lower the overall tax burden for consumers while enhancing liquidity for producers.
How will these reforms impact coal pricing?
The reforms are expected to reduce coal prices significantly, with reductions ranging from Rs 13.40 to Rs 329.61 per tonne across various coal grades, thereby lowering generation costs in the power sector.
What is the significance of removing the compensation cess?
Removing the Rs 400 compensation cess levels the playing field for Indian coal, making it more competitive against imported coal, which previously benefitted from lower landing costs.
How does GST 2.0 support India's self-reliance?
By rationalizing the tax structure and eliminating distortions, GST 2.0 encourages local coal production and reduces import dependency, aligning with the Aatmanirbhar Bharat initiative.
What benefits do coal companies gain from these reforms?
Coal companies will benefit from improved liquidity and reduced tax liabilities, as the unutilized tax credits can now be applied to future GST liabilities, enhancing their financial stability.
Nation Press