NEW DELHI: While ruling out an extension of the goods and services tax (GST) compensation cess beyond March 2026, the Centre has accepted the demand from some states to discuss the road map for the cess after that.
The compensation cess was imposed for five years to ensure that any shortfall in annual revenue growth below the promised level of 14% was made good. The cess is applied to certain luxury and sin goods such as tobacco, coal, aerated drinks and automobiles. The compensation cess had to be extended as the states had to borrow during the Covid period to make up for the shortfall in revenue. As a result, the money coming through this window is now used to settle the principal and interest.
Government sources indicated that the cess will continue in some form but the plan will need to be worked out and implemented in the coming years. When asked about it, finance minister Nirmala Sitharaman said that a discussion is planned in the GST Council but did not indicate a date.
The compensation cess was imposed for five years to ensure that any shortfall in annual revenue growth below the promised level of 14% was made good. The cess is applied to certain luxury and sin goods such as tobacco, coal, aerated drinks and automobiles. The compensation cess had to be extended as the states had to borrow during the Covid period to make up for the shortfall in revenue. As a result, the money coming through this window is now used to settle the principal and interest.
Government sources indicated that the cess will continue in some form but the plan will need to be worked out and implemented in the coming years. When asked about it, finance minister Nirmala Sitharaman said that a discussion is planned in the GST Council but did not indicate a date.
