[ad_1]
The GST Council is expected to consider the recommendation by a Group of Ministers (GoM) to end Compensation Cess by October 31. It will also deliberate on an alternative to compensation cess once it is abolished.
Compensation cess was brought under GST through a special law to bridge revenue loss post introduction of GST in 2017. Originally, it was proposed to end on June 30, 2022. However, during Covid-19, the Central government borrowed from the market on behalf of States to compensate for revenue loss. This loan was repaid through money collected from compensation cess, which is why its sunset date was extended to March 31, 2026, or till the entire principal and interest amount is repaid — whichever is earlier.
According to sources, the Revenue Department of the Finance Ministry submitted to the GoM that it expects collection of Compensation Cess by October 31, 2025 to be sufficient for repayment of admissible GST compensation to States/UTs and the repayment of the back-to-back loan along with applicable interest.
Keeping this in mind, the GoM may recommend that the levy of Compensation Cess should end by October 31, 2025 or by such date by which the obligations under compensation cess account are completely fulfilled. Sources said this is likely to be placed before the GST Council to take a final call.
2 options
Another issue is replacement of the cess after the abolition of compensation Cess. According to the sources, the GoM has suggested two options.
First option, concurred by Assam, Chhattisgarh, Gujarat, Madhya Pradesh, talks about merging the items which are currently subjected to the compensation cess in the GST framework and the matter of fixation of rate may be addressed by the GoM on Rate Rationalisation.
The second option talks about continuation of cess, in the form of an additional levy, which needs to be used to compensate States which are losing revenue arising from the implementation of GST. Sources said that this option was concurred by West Bengal, Tamil Nadu, Punjab and Karnataka. West Bengal proposed amending the GST law to exempt the 40 per cent tax cap from applying to the additional levy and sought a separate schedule for items under it.
Published on September 2, 2025
[ad_2]
Source link
