GST compensation cess levy extended till 2026

The government has extended the time for levy of GST compensation cess by nearly 4 years till March 31, 2026. As per the Goods and Services Tax (Period of Levy and Collection of Cess) Rules, 2022, notified by the Finance Ministry, the compensation cess will continue to be levied from July 1, 2022 to March 31, 2026.

The levy of cess was to end on June 30 but the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising State FMs, decided to extend it till March 2026 to repay the loans taken in the last two fiscal years to make up for the shortfall in their revenue collection.

After the 45th GST Council meeting in Lucknow in September last year, Ms. Sitharaman had said the regime of paying compensation to States for revenue shortfall resulting from subsuming their taxes such as VAT in the uniform national tax GST, will end in June 2022.

However, the compensation cess, levied on luxury and demerit goods, will continue to be collected till March 2026 to repay the borrowings that were done in 2020-21 and 2021-22 to compensate States for GST revenue loss.

In order to meet the resource gap of States due to short release of compensation, the Centre has borrowed and released Rs. 1.1 lakh crore in 2020-21 and Rs. 1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection.

The Centre has repaid Rs. 7,500 crore as interest cost for the borrowing in 2021-22 and Rs. 14,000 crore is to be paid this fiscal year. From 2023-24, the repayment of principal amount will start which will continue till March 2026.