GST Council sets up panel on compensation cess

Goods and Services Tax (GST) Council has set up a 10-member GoM, chaired by Minister of State for Finance Pankaj Chaudhary, to decide on taxation of luxury, sin and demerit goods once compensation cess ends in March 2026.

Group of Ministers (GoM), which includes members from Assam , Chhattisgarh , Gujarat , Karnataka, Mhya Presh , Punjab , Tamil Nu, Uttar Presh and West Bengal, will submit its report to Council by December 31.

In GST regime, compensation cess at varied rates is levied on luxury, sin and demerit goods over and above 28 per cent tax. proceeds from cess, which was originally planned for five years after GST roll-out or till June 2022, were used to compensate states for revenue loss incurred by m post introduction of GST.

In 2022, Council decided to extend levy till March 2026 to repay interest and principal amount of Rs 2.69 lakh crore worth loan taken in 2021 and 2022 fiscal years to make good states' revenue loss during Covid years.

With just one-and-a-half year remaining for cess to end, GST Council in its 54th meeting on September 9 decided to set up a GoM to decide future course of cess.

" Terms of Reference of GoM is to make taxation proposal to replace compensation cess after its abolition," GST Council Secretariat said in an office memorandum.

task before GoM is quite critical as it would have to suggest wher levy would continue as cess or ditional tax. If it is called cess, n like any or cess under tax laws, collection would go to Centre.

If GoM decides not to levy cess but impose ditional taxes on luxury, sin and demerit goods, n it has to suggest what would be rates, how many new slabs would be required and what are legislative amendments that would be required.

Currently, goods and services tax (GST) is a four-tier tax structure with slabs at 5, 12, 18, and 28 per cent. However, as per GST law, tax of up to 40 per cent can be imposed on goods and services.

As per calculations, interest and principal of Rs 2.69 lakh crore loan would be repaid by January 2026. collection from compensation cess in February and March, 2026 is estimated to be Rs 40,000 crore.

GST law provides that any ditional amount collected in compensation cess pool would be divided equally between Centre and states.

GST Council would also have to decide wher it would continue with compensation cess till March 2026 or end it by January 2026 or as and when loan is repaid and bring in new taxation proposal as per suggestions of GoM on GST compensation cess.