GST on Coal: Latest GST Rates and Their Impact

Coal powers much of India’s electricity, and it is also essential for steel, cement and other industries. In September 2025, the GST Council made significant changes to how coal is taxed. These changes will influence coal pricing, company finances, and even electricity bills for consumers.

Key Takeaways

• GST rate on coal increased from 5% to 18%.
• Flat Rs.400 per tonne GST cess removed.
• Tax on cheaper grades of coal is now lower in percentage terms compared to before.
• The change fixes inverted duty, unlocking input credit and cash flow.
• The change may help stabilise or slightly reduce the cost of electricity.

What is GST on Coal?

GST on coal is the tax charged on sales of coal and similar fuels that are moved and used across India. Before the introduction of GST, coal prices included various taxes, such as excise duty, state VAT, and a clean energy cess. GST replaced these with a single tax rate nationwide.

Until recently, coal had a 5% GST rate plus a flat Rs.400 per tonne compensation cess, regardless of the coal’s quality or price. From September 2025 onwards, the GST rate is 18%, and the flat cess has been removed.

For instance, imagine a power plant buying low‑grade coal at Rs.1,200 per tonne before the changes:

• Old System (5% GST + Rs.400/tonne cess):
  • GST = Rs.60, Cess = Rs.400
  • Total tax = Rs.460, Effective tax rate ~38%
• New System (18% GST, no cess):
  • GST = Rs.216, Cess = Rs.0
  • Total tax = Rs.216, Effective tax rate ~18%

GST Rates on Coal Products

How Coal Was Taxed Before and After GST 2.0

Before GST came in (2017), coal prices included excise duty, VAT and the clean energy cess, making taxes complex and varied by state. GST simplified things, but the flat Rs.400 cess caused problems.

1. Old GST Framework (2017–2025)
   • GST rate: 5%, plus a cess of Rs.400/tonne.
   • Cess applied equally, regardless of price or grade.
   • Low‑grade coal bore a higher tax percentage, making it less attractive even for industries that could use it.
2. New GST Framework (Post September 2025)
   • GST rate: 18%, no cess.
   • Tax is applied as a percentage of coal’s value, making it fairer across different grades.
   • Industries such as cement plants and brick kilns, which use cheaper coal grades, face a lighter tax load in overall percentage terms.

Why This Change Matters

1. Fairer Tax for Different Coal Grades

Removing the flat cess means low‑priced coal is no longer taxed disproportionately. For example, brick kilns and small foundries that rely on cheaper grades now pay less tax per tonne.

2. Better Liquidity for Coal Companies

Previously, the GST on coal (5%) was lower than the GST on inputs such as machinery repairs, wagon rentals, or security services (which typically carry 18% GST). This mismatch resulted in unused GST credits sitting on the books. Now, the coal GST rate aligns with input service rates, enabling companies to utilise credits and free up working capital.

3. Cheaper Power Generation

With no cess, power plants pay less for bulk coal purchases. This can lower production costs and help avoid electricity tariff hikes for consumers.

4. Boost for Domestic Coal over Imports

Imported high-grade coal previously had a pricing advantage due to the flat cess on Indian coal. This change evens out the playing field, supporting local mining jobs and reducing reliance on imports.

Comparison of GST Rate Changes on Coal

Expected Results

• Coal producers gain access to blocked GST credits.
• Industries using cheaper coal will see meaningful cost reductions.
• Electricity cost may drop slightly, especially from coal‑fired plants.
• Import substitution is likely, as Indian coal becomes more competitive.
• Simpler compliance with a uniform GST rate across most coal types.