The Group of Ministers (GoM) on GST Compensation Cess, led by Minister of State for Finance Pankaj Chaudhary, convened on October 16 to explore the potential merger of the compensation cess into the broader Goods and Services Tax (GST) framework. This crucial meeting revived discussions from the 7th GST Council meeting held in December 2016, where then Finance Minister Arun Jaitley had suggested that the compensation cess could be merged with the primary GST once the initial five-year levy period ended.
The compensation cess, introduced alongside the implementation of GST on July 1, 2017, was levied on luxury, sin, and demerit goods in addition to the standard 28% GST rate. Its primary purpose was to compensate states for any revenue loss experienced due to the GST rollout for a five-year period.
As the compensation cess is set to expire in March 2026, the GoM is considering the possibility of merging it with GST rather than extending it further. During the meeting, various states recommended that no additional goods should be included under the luxury or demerit goods category if the cess is merged. The states are also in favor of restructuring the existing cess into separate tax rates under GST for these items, with proceeds split equally between the Centre and the states.
Minister Chaudhary confirmed that the GoM will meet again in November to continue deliberations, and the final recommendations will be submitted to the GST Council by December 31.
The compensation cess had been extended until March 2026 to help repay loans amounting to ₹2.69 lakh crore that were taken during the COVID-19 pandemic to compensate states for revenue losses. With the end of the compensation period approaching, the GST Council is tasked with determining the future of the cess and its potential integration into the GST structure.
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