The Group of Ministers (GoM) on compensation cess is yet to reach a consensus on the future of the levy, with members divided over whether to continue it in its current form or replace it with a streamlined GST rate structure.
According to sources, the GoM is expected to place two alternatives before the GST Council for consideration:
- Option 1: Continue the cess as an additional levy to compensate states for revenue shortfalls.
- Option 2: Remove the cess and instead allocate an appropriate GST rate for items currently under cess, without imposing any additional tax.
The divide among states remains sharp. Assam, Chhattisgarh, Gujarat, Madhya Pradesh and Uttar Pradesh back the proposal to phase out the cess and move items into the regular GST rate structure. In contrast, West Bengal, Tamil Nadu, Punjab and Karnataka favour continuing the cess in the form of an additional levy to safeguard state revenues.
The GoM is also likely to propose that additional collections of Rs 1,880 crore under the cess be split equally between the Centre and states, following the provisions of Section 10(3) of the GST Act, 2017.
Importantly, the panel is expected to recommend that the levy of compensation cess formally end by October 31, 2025, setting a firm deadline for resolution.
The final decision will rest with the GST Council, which will weigh the two options in its upcoming meeting.
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