GST Council sets up GoM on compensation cess; panel to submit report by December 31

GST Council sets up GoM to decide on taxation of luxury, sin, and demerit goods post-compensation cess end in March 2026.

The Goods and Services Tax (GST) Council has set up a 10-member GoM, chaired by Minister of State for Finance Pankaj Chaudhary, to decide on the taxation of luxury, sin and demerit goods once the compensation cess ends in March 2026.

The Group of Ministers (GoM), which includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal, will submit its report to the Council by December 31.

In the GST regime, compensation cess at varied rates is levied on luxury, sin and demerit goods over and above the 28% tax. The proceeds from the cess, which was originally planned for five years after GST roll-out or till June 2022, were used to compensate States for revenue loss incurred by them post the introduction of GST.

In 2022, the Council decided to extend the levy till March 2026 to repay the interest and the principle amount of the ₹2.69 lakh crore worth loan taken in the 2021 and 2022 fiscal years to make good states' revenue loss during Covid years.

With just one-and-a-half year remaining for the cess to end, the GST Council in its 54th meeting on September 9 decided to set up a GoM to decide the future course of the cess.

"The Terms of Reference of the GoM is to make taxation proposal to replace compensation cess after its abolition," the GST Council Secretariat said in an office memorandum.

The task before the GoM is quite critical as it would have to suggest whether the levy would continue as cess or additional tax. If it is called cess, then like any other cess under tax laws, the collection would go to the Centre.