Power cost to drop 17-18 paise per unit as GST Council scraps coal cess

The GST Council's decision to remove the Rs 400 coal cess will lower electricity generation costs, ease liquidity for coal companies and make domestic coal more competitive

The cost of electricity generation is set to decline by about 17–18 paise per unit after the Goods and Services Tax (GST) Council recently removed the Rs 400-per-tonne compensation cess on coal. The change is expected to lower the average price of coal for the power sector by around Rs 260 per tonne, the Ministry of Coal said in a statement.

 

It said the reform will reduce coal prices across grades G6 to G17 by Rs 13.40 to Rs 329.61 per tonne. The move replaces the earlier flat cess with a uniform tax incidence of 39.81 per cent across coal grades.

 

Earlier, the cess disproportionately raised the cost of lower-quality coal, such as G-11 non-coking coal produced in large quantities by Coal India Limited, where the tax incidence was 65.85 per cent compared with 35.64 per cent for higher-grade G2 coal.

 

In its 56th meeting, the GST Council raised the GST rate on coal from 5 per cent to 18 per cent. The ministry said this corrects the inverted duty structure, where coal was taxed lower than input services used by coal companies, typically at 18 per cent.

 

The mismatch had led to large amounts of unused tax credit accumulating in company accounts. With the higher GST rate, companies will be able to use these credits against their liabilities, releasing blocked funds and improving liquidity.

 

The removal of the cess also makes domestic coal more competitive against imports. Previously, the flat cess sometimes made high-grade imported coal cheaper than India’s low-grade varieties. The ministry said the reform would strengthen domestic coal use and reduce imports.