The compensation cess currently being collected under the Goods and Services Tax (GST) framework may either be absorbed into the basic GST rate or levied as a separate charge once it expires in March 2026, according to DP Nagendra Kumar, former Member of the Central Board of Indirect Taxes and Customs (CBIC).
In an interview with CNBC-TV18, Kumar said the cess—originally introduced in 2017 for a five-year period—continues to be collected to repay loans taken by the central government to bridge shortfalls in state revenues during the pandemic years. “The entire compensation payable to the states for the first five years has since been paid… So, the cess currently being collected is being used to repay that loan,” he said.
He said any proposal to extend the cess beyond 2026 or introduce new charges, such as a health or clean energy cess, would require legal and constitutional scrutiny. “Whether such levies could be used for broader purposes is something that would need careful examination,” Kumar said, adding that it remains unclear whether a new levy could still be defined as a “cess” in the legal sense.
The GST Council is expected to take up the issue in the coming months. Kumar said multiple cesses may conflict with the overall objective of simplifying the GST regime.
He clarified that cess-related issues are distinct from the broader GST rate rationalisation exercise currently underway. The committee overseeing rate revisions is headed by the Bihar Deputy Chief Minister. Kumar said any proposal to increase GST rates on sin goods to balance out rate changes would be handled separately and would require agreement among all states.
Source from: https://www.cnbctv18.com/economy/gst-council-compensation-cess-rate-rationalisation-19622043.htm
