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

The Goods and Services Tax (GST) Council has acceptable up a 10-member GoM, chaired by Minister of State for Finance Pankaj Chaudhary, to determine connected the taxation of luxury, misdeed and demerit goods erstwhile the compensation cess ends successful 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, volition taxable its study to the Council by December 31.

In the GST regime, compensation cess astatine varied rates is levied connected luxury, misdeed and demerit goods implicit and supra the 28 per cent tax. The proceeds from the cess, which was primitively planned for 5 years aft GST roll-out oregon till June 2022, were utilized to compensate states for gross nonaccomplishment incurred by them station the instauration of GST.

In 2022, the Council decided to widen the levy till March 2026 to repay the involvement and the rule magnitude of the Rs 2.69 lakh crore worthy indebtedness taken successful the 2021 and 2022 fiscal years to marque bully states' gross nonaccomplishment during Covid years.

With conscionable one-and-a-half twelvemonth remaining for the cess to end, the GST Council successful its 54th gathering connected September 9 decided to acceptable up a GoM to determine the aboriginal people of the cess.

"The Terms of Reference of the GoM is to marque taxation connection to regenerate compensation cess aft its abolition," the GST Council Secretariat said successful an bureau memorandum.

The task earlier the GoM is rather captious arsenic it would person to suggest whether the levy would proceed arsenic cess oregon further tax. If it is called cess, past similar immoderate different cess nether taxation laws, the postulation would spell to the Centre.

If the GoM decides not to levy cess but enforce further taxes connected luxury, misdeed and demerit goods, past it has to suggest what would beryllium the rates, however galore caller slabs would beryllium required and what are the legislative amendments that would beryllium required.

Currently, goods and services taxation (GST) is simply a four-tier taxation operation with slabs astatine 5, 12, 18, and 28 per cent. However, arsenic per GST law, taxation of up to 40 per cent tin beryllium imposed connected goods and services.

As per the calculations, the involvement and main of the Rs 2.69 lakh crore indebtedness would beryllium repaid by January 2026. The postulation from the compensation cess successful February and March, 2026 is estimated to beryllium Rs 40,000 crore.

The GST instrumentality provides that immoderate further magnitude collected successful the compensation cess excavation would beryllium divided arsenic betwixt the Centre and states.

The GST Council would besides person to determine whether it would proceed with the compensation cess till March 2026 oregon extremity it by January 2026 oregon arsenic and erstwhile the indebtedness is repaid and bring successful the caller taxation connection arsenic per the suggestions of the GoM connected GST compensation cess.