GoM Discusses Merger of GST Compensation Cess into Main Tax Structure

Last updated: 19 October 2024

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A Group of Ministers (GoM) met on October 16 to discuss merging the GST Compensation Cess into the main GST framework. This cess, originally introduced to compensate states for revenue losses after GST implementation, is set to expire in March 2026. States have proposed restructuring the cess into separate tax rates within GST, with proceeds shared equally between the Centre and states, rather than extending the current levy. The GoM will reconvene in November, with final recommendations due to the GST Council by December 31.

The Group of Ministers (GoM) on GST Compensation Cess, led by Minister of State for Finance Pankaj Chaudhary, convened on October 16 to explore the potential merger of the compensation cess into the broader Goods and Services Tax (GST) framework. This crucial meeting revived discussions from the 7th GST Council meeting held in December 2016, where then Finance Minister Arun Jaitley had suggested that the compensation cess could be merged with the primary GST once the initial five-year levy perio

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FAQ :

The GST Compensation Cess was introduced when GST was implemented on July 1, 2017. It was levied on luxury, sin, and demerit goods, in addition to the standard 28% GST rate, to compensate states for any revenue loss they might experience.

The GST Compensation Cess is scheduled to expire in March 2026.

The GoM is discussing the possibility of merging the GST Compensation Cess into the main Goods and Services Tax (GST) structure, rather than extending its expiry.

States have recommended that no new goods should be added to the luxury or demerit categories if the cess is merged. They also favour restructuring the existing cess into separate tax rates under GST for these items, with the proceeds split equally between the Centre and the states.

The compensation cess was extended until March 2026 to help repay loans amounting to ₹2.69 lakh crore taken during the COVID-19 pandemic to compensate states for revenue losses.

The final recommendations from the GoM will be submitted to the GST Council by December 31.

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CCI News Desk

Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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