GST Council Decides To Extend Compensation Cess Till March 2026



GST Council Decides To Extend Compensation Cess Till March 2026

Nirmala Sitharaman chaired the 45th GST Council meeting in Lucknow on Friday.

New Delhi: The Goods and Services Tax (GST) Council on Friday decided to extend compensation cess till March 2026 for repaying loans. “Detailed financial statements have been worked out, based on which we learn that cess will have to be collected till March 2026, purely to pay back loans taken between 2020-21 and 2021-22,” Finance Minister Nirmala Sitharaman stated while briefing media on the outcome of 45th GST Council meeting.

Compensation cess is given to the states to compensate for the revenue losses due to GST implementation for a period of five years from 2017.

“It was decided at 43rd GST Council meeting that cess has to be collected beyond July 2022 for the specific purpose of repayment of loans taken. This cess collection has to go on till March 2026, based on the financial statements worked out now,” the finance minister further said.

The state governments have been demanding the Centre to address the pending issue pertaining to compensation cess as well as the pending compensation payment for last year. Some states have wanted the compensation period to increase beyond 5 years but the Centre has remained silent on this key demand made by them.

The GST Council decided to set up a Group of Ministers (GoM) to examine the issue of correction of inverted duty structure for major sectors; rationalize the rates and review exemptions from the point of view of revenue augmentation, from GST.

It also decided to set up a GoM to discuss ways and means of using technology to further improve compliance including monitoring through improved e-way bill systems, e-invoices, FASTag data and strengthening the institutional mechanism for sharing of intelligence and coordinated enforcement actions by the Centre and the states.

“The expectations of the industry on issues of rate rationalisation, correction of inverted duty structure seem to have been prioritised by the Council in today’s meeting, with proposals to change the rates for specific goods and services. The proposal to extend the period for levy of compensation cess till March 2026 does not come as a surprise to the industry, as it has been in discussions since last year,” said Shareen Gupta, Partner, J Sagar Associates.

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