Synopsis: The GST Council is set to deliberate on ending the GST compensation cess earlier than planned, with discussions pointing to an October 31 cutoff. The move comes as Covid-era loans taken to support states are nearing full repayment.
The Goods and Services Tax (GST) Council, scheduled to meet on September 3, is expected to take up the issue of ending the GST compensation cess by October 31, according to reports. Originally slated to continue till March 31, 2026, the cess may conclude earlier as revenue shortfall loans taken during the Covid-19 pandemic are close to being fully repaid.
Government sources indicate that loan repayment will likely be completed around October 18, with a surplus of ?2,000–3,000 crore projected. This surplus, if realized, will be shared equally between the Centre and states.
What Is GST Compensation Cess?
The cess was introduced under the GST (Compensation to States) Act, 2017, to help states recover revenue losses after the rollout of GST on July 1, 2017. Initially set for five years, the levy was extended due to pandemic-related revenue shocks.
How Is It Levied?
The Central Board of Indirect Taxes and Customs (CBIC) notes that the cess is imposed on specified goods imported into India, collected at the same point as customs duties under the Customs Tariff Act, 1975.
When Is It Not Levied?
- Not applicable on goods exported under bond/LUT; exporters can claim refunds of input tax credit of cess paid.
- Not charged when goods are exported with cess payment; exporters can claim refunds for cess paid.
- Exempt for supplies made by taxpayers under the composition levy scheme.
Why It Matters
If approved, the early end of compensation cess would mark a significant fiscal shift for both the Centre and states. While state governments were heavily dependent on this compensation during GST transition years, waning need for such support reflects stabilizing revenue collections post-pandemic.
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Readers are advised to consult official government notifications or professional advisors before making any tax-related decisions.
