New Delhi: The Goods and Services Tax (GST) Council, set to meet on September 3, is expected to discuss ending the compensation cess by October 31, ahead of its originally scheduled expiry.
The GST compensation cess was initially scheduled to end on March 31, 2026. However, discussions have begun to conclude the cess collection earlier, as loans taken during the COVID-19 pandemic to compensate states for revenue shortfalls are nearing full repayment, according to multiple media reports.
The repayment is anticipated to be completed by around October 18, though the government may continue the levy until the end of October to ensure smooth operations. Reports citing government sources suggest that the cess collection could generate a surplus of approximately ₹2,000–3,000 crore, which would be shared equally between the Centre and the states.
The compensation cess was introduced to safeguard state revenues for five years, as states had concerns over potential revenue losses when GST was implemented in 2017. To bridge this gap, the Centre borrowed ₹2.69 lakh crore on behalf of the states and provided it as loans to help manage finances.
Originally extended from June 2022 to March 2026, the cess was meant to service pandemic-related loans when revenue collections were significantly impacted. Under the Goods and Services Tax (Compensation to States) Act, 2017, cess collection must cease once loan repayments are complete.
Separately, the Finance Ministry has proposed simplifying GST rates to two slabs—5% and 18%—across all goods, replacing the existing four-tier structure. Prime Minister Narendra Modi recently announced that this GST reform would provide a “double bonus” to citizens this Diwali, aiming to lower prices for the poor and middle class.
