New Delhi: The government on Thursday said that the GST reforms will bring down the overall tax on coal and reduce the cost of power generation.

Earlier, coal attracted 5 % GST along with a compensation cess of ₹400 per tonne. The GST Council has recommended the removal of the GST Compensation cess and an increase in the GST rate on coal from 5 per cent to 18 per cent.

The new reforms bring down the overall tax on coal grades G6 to G17, which is in the range of Rs 13.40 per tonne to Rs 329.61 per ton.

“The average reduction for the power sector is Rs 260 per tonne, which will reduce the cost of generation by 17 to 18 paise/kWh,” the coal ministry said in a statement.

The reforms will also help in rationalisation of tax burden on coal vis-A -vis its pricing.

Earlier, a flat rate of Rs 400 per tonne was imposed as GST compensation cess without considering coal quality. This disproportionately affected low-quality and low-priced coal. For example, G-11 non-coking coal, which is the majority coal produced by state-owned Coal India Ltd, had a tax incidence of around 65.85 per cent compared to G2 coal where incidence was 35.64 per cent.