New avatar likely for compensation cess

The goods and services tax (GST) compensation cess expiring in March 2026 or before may be replaced with a new levy, if the GST Council feels more revenue is needed, two officials aware of discussions between the Centre and states said.

- Gireesh Chandra Prasad

The cess, which is levied on products in the 28% GST slab such as aerated drinks, tobacco and automobiles, was meant to compensate states for their revenue losses in the first five years of GST till June 2022. It was extended till March 2026 to repay a ₹2.69 trillion debt raised by the Centre when the cess collection was not sufficient to pay the states during the pandemic years.

The cess may end even before March 2026 if the Centre is able to prepay the debt.

"If before March 2026 we are able to pay all the loans and pay some of the compensation due to be paid because of nonreceipt of audited figures from some of the states, the compensation cess cannot be levied beyond that," one of the persons cited above said on condition of anonymity.

"Products like tobacco and automobiles currently attracting cess over and above 28% GST cannot have GST compensation' cess after that. The GST Council will decide what is to be done after the compensation cess is removed... It can continue in some other form, no doubt," the person added.