The 56th meeting of the GST Council was held in New Delhi on 3rd September 2025, chaired by the Union Minister for Finance and Corporate Affairs. The Council recommended wide-ranging rationalisation of GST rates across goods and services, with an emphasis on correcting duty structures, simplifying compliance, and addressing sector-specific issues.
More importantly, the GST rate slab of 12% was done away with, causing a significant impact to both Oil & Gas and Renewable Energy Sectors. For the Oil & Gas sector, goods required for petroleum operations and services linked to exploration and production now face higher GST rates of 18%, as opposed to 12% earlier. As far as Renewable Energy sector is concerned, significant reductions have been announced (from 12% to 5%) to encourage wider adoption of clean energy technologies and sustainable mobility. These changes will be applicable with effect from 22 September 2025.
Oil and Gas Sector
Goods required in connection with Petroleum Operations
increased to 18%
The Council recommended increase in GST rate from 12% to
18% on goods required in connection with petroleum operations
undertaken under various government-sanctioned frameworks. These
include operations under petroleum exploration licenses or mining
leases granted to ONGC or Oil India Limited on a nomination basis,
as well as contracts under the New Exploration Licensing Policy
(NELP), Marginal Field Policy (MFP) and Coal Bed Methane
Policy.
Services in relation to Petroleum Operations increased
to 18%
The Council recommended increasing the GST rate from 12%
to 18% on professional, technical, and business services related to
exploration, mining or drilling of petroleum crude or natural gas.
Similarly, support services to these activities will now attract
18% GST, an increase from the previous 12%.
While the revisions are made to avoid classification disputes and fit into 2-slab structure, it will have significant impact for sector which is otherwise not entitled to ITC or entitled to very limited ITC under GST.
Transportation of Petroleum Products
The GST rate for the supply of transportation services of petroleum crude, motor spirit, high-speed diesel, and aviation turbine fuel (ATF) through pipelines remains at 5% without input tax credit (ITC). However, the option to pay 12% with ITC has been revised to 18%, reflecting a 6% increase.
Offshore Works Contracts
The Council recommended increasing the GST rate on services related to offshore works contracts for oil and gas exploration and production from 12% to 18%. This may impact contractors and service providers operating in offshore zones, potentially increasing project costs.
Renewable Energy Sector
Renewable Energy Devices and Components
GST reduced from 12% to 5% on renewable energy devices and parts used for their manufacture, including:
- Solar cookers
- Solar water heaters and systems
- Biogas plants
- Solar power-based devices
- Solar power generators
- Wind mills and Wind Operated Electricity Generators (WOEG)
- Waste-to-energy plants and devices
- Solar lanterns and solar lamps
- Ocean wave and tidal energy devices/plants
- Photovoltaic cells (whether or not assembled in modules or made up into panels).
- This is also likely to have impact on works contracts involve supply and installation.
- Fuel Cell Vehicles including hydrogen vehicles based on fuel cell technology, will now attract GST at 5%.
Impact
Oil & Gas
The services of exploration, mining or drilling of petroleum crude initially attracted GST at the rate of 12%. A concessional rate was provided to exploration, mining or drilling of petroleum crude, in light of petroleum products being outside the ambit of GST and GST charged on drilling functions becoming a cost to the sector. With increased GST rate of 18% on support services and professional, technical, and business services in relation to exploration, mining and drilling activities, the cost of production of crude oil and gas is likely to have an impact as oil and gas remain outside the purview of GST.
Further, the increase in the GST rate on composite supply of works contract in respect of offshore works contract relating to oil and gas exploration and production from 12% with ITC to 18% with ITC shall also affect the cost of construction and infrastructure development in the sector.
Classification disputes in relation to offshore support services such as data analytics of real time drilling rig operations, tugs, offshore support vessels etc. shall be put to rest as such services will now collectively fall under the tax slab of 18%, but with significant impact in costs.
Furthermore, the GST rationalisation of coal, i.e. the removal of compensation cess of Rs 400 per tonne along with the increase in rate of tax to 18%, is expected to reduce the energy charge rate for power generation companies. Previously, Coal was subject to GST at the rate of 5% with compensation cess. Going forward, the GST Council has recommended an increased GST rate of 18%, putting an end to the levy of compensation cess, merging the same with the increased GST rate. This shall benefit the coal based thermal power plants utilising domestic coal and boost investments in the sector.
Renewable Energy
The GST rate reduction on renewable energy devices and manufacturing equipment shall restore the status-quo that existed prior to the 45th GST Council Meeting held in the year 2021. The rate of tax on critical components of solar projects and other renewable energy equipment was hiked from 5% to 12% following the 45th Council Meeting in 2021 primarily to cater to the issue of inverted duty structure owing to higher rate of tax on inputs. The composite supply contracts, 70% of the contract value considered as the supply of goods was taxed at the rate of 12%, while the remaining 30% treated as services was taxed at the rate of 18%. Commencing September 22, 2025, renewable energy products shall be subject to GST at a reduced rate of 5% for goods component in 70:30 ratio, while service component shall continue to be taxed at 18%. This shall aid in reducing the cost of production and boost domestic manufacturing. The rate cut shall ease capital expenditure and promote the faster adoption of cleaner, greener technologies and encourage exports.
Having said that, ITC accumulation and structuring of transactions is an aspect which needs to be examined in order to ensure that there is no working capital impact / long term costs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
