GST On Coal Raised to 18%, No Extra Cost for Coal India

04 Sep 2025 CW Team

At its 56th meeting on 3 September, the GST Council raised the Goods and Services Tax (GST) on coal from 5 per cent to 18 per cent. However, the hike is not expected to negatively impact Coal India Ltd, the country’s largest coal producer.

Previously, coal attracted 5 per cent GST along with a compensation cess of Rs 400 per tonne. Under the new structure, the compensation cess has been abolished, and its fiscal impact merged within the revised GST rate. As a result, there will be no additional tax burden on coal consumers or producers.

The compensation cess was introduced in 2017 to offset revenue losses incurred by states following the implementation of the GST system. It was primarily levied on sin goods and luxury items and is scheduled to remain in effect until 31 October 2025. The council's recommendation to discontinue the cess for coal aligns with its broader aim to simplify the indirect tax regime.

The GST Council also approved a major overhaul of the tax structure, introducing a two-rate system of 5 per cent and 18 per cent while retaining a special 40 per cent rate for select sin goods. The new rates will come into force from 22 September.

This reform is part of the Centre’s 'GST 2.0' initiative, which eliminates the earlier 12 per cent and 28 per cent slabs in a move to streamline compliance and spur consumption. Prime Minister Narendra Modi had announced the push for GST reform during his Independence Day address on 15 August.

Market sentiment around Coal India Ltd remained positive, with the company’s shares closing 2.45 per cent higher at Rs 389.4 on the day of the announcement. Over the past month, the stock has gained 3.9 per cent.

Analysts see the tax realignment as neutral for coal producers while enhancing clarity and ease of administration under the revamped GST framework.

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