The Central Government has notified a major change in the GST Compensation Cess regime, setting the compensation cess rate at "Nil" for a large number of goods listed under the Schedule to Notification No. 1/2017-Compensation Cess (Rate).
The amendment has been notified by the Ministry of Finance (Department of Revenue) vide Notification No. 03/2025-Compensation Cess (Rate), issued under G.S.R. 945(E), and will come into force from February 1, 2026.
Wide-Ranging Reduction in Compensation Cess
As per the notification, the Government has substituted the existing cess rates with "Nil" for a wide range of serial numbers in the Schedule, covering entries from S. No. 1 up to S. No. 38, including their respective sub-entries such as 1A, 5A, 6A, 7A, 19A, 20A, 24A, 24B, 24C, and several others.
This effectively means that no compensation cess will be leviable on the specified goods once the notification becomes effective.
Issued on GST Council Recommendations
The amendment has been issued by exercising powers under Section 8(2) of the Goods and Services Tax (Compensation to States) Act, 2017, and is based on the recommendations of the GST Council.
The principal notification governing compensation cess rates was originally issued in June 2017 and has been amended multiple times since then. The present notification marks one of the most extensive rationalisations of compensation cess rates to date.
What This Means for Businesses and Industry
- Compensation cess on numerous notified goods will become zero
- Reduction in overall GST outgo and pricing pressure
- Likely compliance relief for manufacturers, importers and traders dealing in affected goods
- Signals continued phase-out and rationalisation of the compensation cess framework
The move is expected to benefit industries that were earlier subject to compensation cess, while also reflecting the Centre's evolving approach as the compensation mechanism for states nears completion.
Official copy of the notification has been attached
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