Mining attracts two different treatments. Mineral goods follow product HSN rates — coal is now 18% (raised from 5% and the ₹400/tonne compensation cess removed from 22 September 2025), while iron ore and most other ores stay 5%. Mining and extraction services (SAC 9986) are 18%, and royalty / lease premium paid to the state is 18% under Reverse Charge (RCM).
GST Rates for the Mining Sector — Reference Table
Rates below reflect the GST 2.0 two-slab structure effective 22 September 2025. Use the HSN / SAC finder to confirm classification before you invoice.
| Item / Service | HSN / SAC | GST Rate | Type | ITC |
|---|---|---|---|---|
| Coal, briquettes (steam / coking) | 2701 | 18% | Goods | Yes |
| Lignite | 2702 | 18% | Goods | Yes |
| Peat | 2703 | 18% | Goods | Yes |
| Iron ore & concentrates | 2601 | 5% | Goods | Yes |
| Manganese ore | 2602 | 5% | Goods | Yes |
| Copper / bauxite / other ores | 2603-2606 | 5% | Goods | Yes |
| Limestone (cement / flux) | 2521 | 5% | Goods | Yes |
| Sand (silica / natural) | 2505 | 5% | Goods | Yes |
| Marble / granite rough blocks | 2515 / 2516 | 5% | Goods | Yes |
| Natural gas / crude oil | — | Outside GST | Petroleum | — |
| Mining / extraction services | 9986 | 18% | Services | Yes |
| Royalty / lease premium to state | 9973 | 18% | Services (RCM) | Yes |
| Mining equipment rental | 997313 | 18% | Services | Yes |
| Explosives (ANFO, dynamite) | 3602-3604 | 18% | Goods | Yes |
| Geological / geophysical surveys | 998622 | 18% | Services | Yes |
Coal, lignite and peat moved from 5% to 18% (with the ₹400/tonne cess withdrawn) on 22 Sep 2025. Confirm every rate on the official GST portal before invoicing.
Coal GST: 5% + Cess → a Flat 18%
The 56th GST Council (effective 22 September 2025) raised the GST on coal from 5% to 18% and simultaneously abolished the ₹400 per tonne compensation cess. Because the flat cess had hit lower grades hardest, the net tax incidence actually fell for most coal grades and was equalised across grades.
Before 22 Sep 2025
- 5% GST on coal value
- + ₹400/tonne compensation cess (flat)
- Heaviest burden on low-grade coal (G-11 etc.)
- Cess did not flow as clean ITC
From 22 Sep 2025
- Flat 18% GST on coal value
- Compensation cess withdrawn
- Tax incidence equalised (~40%) across grades
- Full 18% available as ITC down the chain
If your ERP still shows coal at 5% + ₹400/tonne cess, it is now wrong. Re-map HSN 2701/2702/2703 to 18%, remove the cess line, and revisit price-variation and tax-recovery clauses in long-term coal/FSA contracts so the buyer bears the correct 18%.
Buying or selling coal? Get your tax masters and contracts realigned to the new 18% rate.
Talk to a GST Expert →Mining Goods vs Mining Services
The single biggest classification issue in mining is whether a supply is the mineral goods being sold or the service of extracting them. They carry different rates and different persons are liable.
- A mining contractor who only extracts (does not own the mineral) charges 18% GST on the service invoice (SAC 9986).
- The mine owner / lessee who sells the extracted mineral charges the goods rate — 18% for coal, 5% for iron ore and most ores.
- Equipment hire, explosives, surveys and works contracts are all 18%; see GST on works contract for mine-development jobs.
Integrated miners buy 18% inputs (contractor services, explosives, equipment) to produce a 5% mineral like iron ore. That builds up unused input credit — an inverted duty structure that can be refunded, not written off. Coal, now at 18% output, is no longer inverted.
Royalty & Lease Premium — the RCM Position
The prevailing GST department view is that royalty and lease/auction premium paid to a state government for mineral rights is consideration for a service, taxable at 18% under Reverse Charge — the mining lessee self-pays the GST. This remains litigated; several miners have challenged it and the Supreme Court has recognised royalty's dual character.
| Payment to government | GST | Rate | Who pays |
|---|---|---|---|
| Mineral royalty (production-linked) | Yes (RCM) | 18% | Lessee — reverse charge |
| Mining lease / auction premium | Yes (RCM) | 18% | Lessee — reverse charge |
| Prospecting / exploration licence fee | Yes (RCM) | 18% | Licensee — reverse charge |
| Dead rent / surface rent | Yes (RCM) | 18% | Lessee — reverse charge |
Litigated area — position may shift with pending Supreme Court and High Court rulings. Take state- and mineral-specific advice.
The good news: RCM GST paid on royalty and lease premium is generally available as ITC (it is a cost of the taxable mineral supply), so for most producers it is cash-flow, not a permanent cost. See our reverse charge guide for how to self-invoice and report it.
Paying royalty or lease premium to a state government? Get your RCM and ITC position confirmed.
Get RCM Advice →ITC and the Inverted-Duty Refund
Mining companies pay 18% GST on almost every input — contractor services, explosives, equipment, diesel-run machinery hire, surveys, royalty RCM. Where the output mineral is taxed at 5%, more credit comes in than goes out, creating an inverted duty structure.
5% Iron-ore producer (inverted)
18% Coal producer (now balanced)
A 5%-output miner can claim the accumulated credit as a refund under Section 54(3). See inverted-duty refunds and the wider ITC rules. Coal producers, now at 18% output, will typically utilise credit rather than refund it.
- GST registration (GSTIN) for the mine
- Correct HSN/SAC on every supply
- Coal masters updated to 18%, cess removed
- RCM self-invoice on royalty & lease
- GSTR-1 (outward supplies)
- GSTR-3B with RCM tax paid
- ITC reconciliation vs GSTR-2B
- Inverted-duty refund (RFD-01) if 5% output
- E-invoicing & e-way bills
- GSTR-9 annual return
Frequently Asked Questions
Related TaxClue services
Mining, Coal or Quarrying — GST Sorted
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