By Sampurna Majumder
The Goods and Services tax (GST) Council decided to make a big change in the way coal is taxed. In its 56th meeting on Wednesday, the council recommended grating the compensation cess of Rs 400 per tonne on coal while increasing the GST rate from 5 to 18 per cent.
This might look like a steep hike in tax but experts have pointed out that the cess removal will actually result in lowering the overall tax burden on the coal industries. This not only includes power producers but also sectors like textiles and cement that depend highly on coal.
The Council’s rate rationalism encompasses not only household and consumer goods but also extends towards industrial inputs including cement, man-made fibres and chemicals like ammonia, sulphuric acid and nitric acid. By rationalising these elements, it provides relief to the sectors ranging from construction to textile and fertilizers.
According to the Ministry of Coal, India’s most widely produced coal which is G11 graded coal costed Rs 1,183 per tonne in April 2025. Earlier, the 5 per cent GST plus the cess translated into a tax burden of Rs 491 which is about 27 per cent of the price. So when the 18 per cent rate takes effect without the cess by September, the subsequent users will be able to buy coal in cheaper rates.
The cess has been the primary factor contributing to the GST burden on coal. In 2024-2025 Coal India Ltd, the country’s largest miner paid Rs 4,549 crore as GST on coal sales compared to Rs 30,410 crore as compensation cess.
Moreover, the GST Council has also recommended reducing the GST rate on cement from 28 per cent to 18 per cent. Reports says that the GST on other elements will also reduce, such as marble, granite blocks and sand lime bricks.
According to the Chairman of ANAROCK group, Anuj Puri “Lower GST on materials such as cement could bring down construction costs by nearly 3–5 per cent. This will particularly benefit developers working on affordable housing projects, as it eases pressure on their cash flows and improves margins.”
Cement, steel and other inputs records for 40-50 per cent of the construction cost in the real estate sector.
This move is expected to lower the production costs for the fertiliser producers while easing the working capital requirements from blocked ITC. While industry stakeholders welcome the move as a timely boost, its effectiveness will ultimately depend on how quickly these benefits translate into lower production costs and broader economic gains.