At its 56th meeting, the GST Council made big changes in tax rates on many goods and services. One important change was the increase in GST on coal from 5% to 18%. At the same time, the ₹400 per tonne compensation cess on coal was removed. This move aims to fix long-standing tax issues in the coal sector, but its effects differ for various industries like power, cement, steel, and coke manufacturers.
Before this change, coal mining services were taxed at 18%, but coal sold to power, cement, and steel companies was taxed only at 5%. This created a problem called an “inverted duty structure,” where the tax paid on inputs was higher than on outputs, leading to blocked tax credits. Now, with a uniform GST rate of 18% on coal, this problem is reduced, helping miners and traders get proper tax credits and making tax rules simpler.
Power companies will see a small increase in their coal costs. Earlier, they paid 5% GST plus a ₹400 cess per tonne, which they couldn’t claim back. Now, the cess is gone but replaced by 18% GST, which also can’t be claimed as input credit because electricity is outside GST.
Therefore, the total tax paid increases slightly, meaning power producers might raise electricity tariffs. Whether this will happen depends on political and economic factors since tariff hikes are sensitive.
Cement and steel companies will benefit from the new GST rate. Unlike power producers, they operate fully under GST and can claim input tax credits. The removal of the ₹400 cess and increase to 18% GST means these industries have smoother tax credit flow and lower costs, which can improve their profit margins.
Coke, an important input for steel, still has a 5% GST rate. Since coal now attracts 18%, coke makers face a new inverted duty structure. They can apply for refunds on unused tax credits, but the process is slow and causes cash flow problems. To help, the government limited coke imports, encouraging domestic production, but the tax mismatch still creates challenges for coke manufacturers.
Read more: GST Rate Cut: Skoda Slashes Prices on All Models in India.
The GST hike on coal is a step towards fixing tax distortions and simplifying compliance. While cement and steel sectors stand to gain, power producers face slightly higher costs, and coke makers deal with new challenges. Policymakers will need to address these ongoing issues to balance tax credit ease and cash flow for all industries.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
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Published on: Sep 11, 2025, 1:03 PM IST
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