The Goods and Services Tax Council, scheduled to meet on September 3, will likely discuss ending the compensation cess by October 31, ahead of schedule.
The GST compensation cess was set to end on March 31, 2026. Discussions, however, have started to conclude the cess collection earlier, as the loans taken during the Covid-19 pandemic to compensate states for revenue shortfalls are approaching full repayment, according to multiple media reports.
The repayment is expected to be completed around October 18, but the government may extend the levy until the end of October for smooth operations.
Reports citing government sources indicated that the cess collection may result in a surplus of about Rs 2,000–3,000 crore to be shared equally between the Centre and the states.
The law mandated the cess for compensation for only five years, as states worried they would lose tax revenue when GST was introduced in 2017. So the compensation cess was levied to make up for the shortfall of state revenue.
The Centre borrowed Rs 2.69 lakh crore on behalf of the states and provided it to them as loans to assist with financial management.
However, the levy had been extended from June 2022 until March 2026 to service loans taken during the pandemic when revenues fell significantly. As per the Goods and Services Tax (Compensation to States) Act, 2017, the cess collection will have to end once the repayment of loans is finished.
The Finance Ministry has sent its proposal to the GST Council for two GST rates of 5 per cent and 18 per cent across all goods, which will replace the existing four slab structure. Prime Minister Narendra Modi announced on Sunday that citizens will receive a double bonus this Diwali through a planned GST reform aimed at reducing prices of goods and services for the poor and middle class.
