The cost of electricity generation in India is expected to decline by 17-18 paise per unit following a major reform in coal taxation. The GST Council, in its 56th meeting, scrapped the Rs 400-per-tonne compensation cess on coal, a move that the Ministry of Coal said will significantly lower input costs for the power sector.
According to official estimates, the removal of the cess will bring down the average coal price by about Rs 260 per tonne. Coal prices across grades G6 to G17 are projected to fall by Rs 13.40 to Rs 329.61 per tonne, offering much-needed relief to power producers.
Previously, the cess disproportionately impacted lower-quality coal, such as G-11 non-coking coal, which is produced in large quantities by Coal India Limited. The tax incidence on G-11 coal stood at a steep 65.85%, compared to just 35.64% for higher-grade G2 coal. By introducing a uniform tax incidence of 39.81%, the government has corrected this disparity.
The Council also raised the GST rate on coal from 5% to 18%, addressing the inverted duty structure that caused coal companies to accumulate large amounts of unused tax credits. With the new rate, companies will now be able to set off these credits against liabilities, thereby improving liquidity and financial efficiency.
The ministry further noted that the reform makes domestic coal more competitive against imports. The earlier cess often made imported high-grade coal cheaper than India's lower-grade alternatives. With the cess gone, domestic coal will hold stronger ground in the energy mix, potentially reducing import dependence.
Industry experts believe the move will lower power costs for consumers, improve coal sector efficiency, and support India's broader energy security goals.
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