GST Compensation Cess: To Merge or Not to Merge?

The Group of Ministers (GoM) is considering the merger of the GST compensation cess into the main tax structure. The compensation cess, levied on luxury and sin goods, was meant to last for five years to compensate states for revenue loss post-GST implementation, with its extension aimed at repaying loans incurred during Covid.

The Group of Ministers (GoM) responsible for GST compensation cess, headed by Minister of State for Finance Pankaj Chaudhary, deliberated on the merger of the compensation cess into the GST framework. Discussions focused on the merger prospects once the compensation cess period ends.

The panel recalled the 7th GST Council meeting in December 2016, when then Finance Minister Arun Jaitley suggested that the compensation cess could merge with GST after its five-year duration. This cess, levied on luxury and sin goods, was intended to offset states' revenue losses post-GST enactment.

States have proposed merging the cess, set to expire in March 2026, into the GST, while ensuring no new goods are added to the compensation list. The GoM is expected to report its findings to the GST Council by December 31, determining the future trajectory of this levy.

(With inputs from agencies.)