The Goods and Services Tax (GST) Council has approved a hike in the GST rate on coal and lignite from 5 per cent to 18 per cent, while simultaneously removing the additional compensation cess of Rs 400 per tonne, previously levied at 40 per cent. The decision, taken on 3 September, is expected to rationalise the tax structure without raising the overall cost burden on power producers or consumers.

According to a statement from the Union government, the move is unlikely to impact electricity prices, as the tax adjustment is designed to be revenue-neutral for buyers. The removal of the cess is expected to offset the increased GST, ensuring minimal change in net costs.

Industry leaders and analysts echoed this view. Sharad Mahendra, Joint MD and CEO of JSW Energy, said the decision would lower fuel costs in thermal power generation, especially where domestic coal is used.

“This will help reduce the base load power cost across the country and strengthen the financial position of distribution companies (discoms),” he said.

Vikram V, Vice President and Co-Group Head at ICRA Ltd, called the development positive for the power sector, noting that it would cut generation costs for coal-based plants.

“The change is expected to lower electricity supply costs for discoms by roughly Rs 0.12 per unit, given that coal-based capacity accounts for nearly 70 per cent of total power generation in India,” he said.

JM Financial Institutional Securities added that players in eastern and central India, who are more dependent on coal, would particularly benefit. The net impact is likely to be neutral or slightly positive, as input tax credit (ITC) will offset the higher GST, translating into a potential industry-level saving of Rs 5–10 per tonne, assuming 15 per cent coal usage.

Despite the overall positive outlook, power sector stocks saw mixed trading. On Thursday, Coal India Ltd closed flat, while NLC India, Tata Power, and JSW Energy dipped by over 1 per cent.

In a set of FAQs issued to clarify the rate rationalisation, the government explained:

“Earlier, coal attracted 5 per cent GST plus a Rs 400 per tonne compensation cess. The new structure merges the cess into GST, with no additional burden imposed on end users.”

This reform is viewed as part of the government’s broader aim to streamline tax structures, enhance transparency, and ease compliance while supporting the financial health of the power sector.