The Government of India has extended the time for levy of GST compensation cess by almost four years till March 31, 2026.
Key Highlights
- As per the Goods and Services Tax (Period of Levy and Collection of Cess) Rules, 2022, the compensation cess would continue to be levied from July 1, 2022, to March 31, 2026.
- The levy of cess was to end on June 30 but the GST Council decided to extend it till 2026 to repay the loans taken in the last two years to make up for the shortfall in their revenue collection.
- After the 45th GST Council meeting in Lucknow in September 2021, chairman of the council Ms. Sitharaman had said the regime of paying compensation to States for revenue shortfall resulting from subsuming their taxes such as VAT in GST, would end in June 2022.
- However, the compensation cess, levied on luxury and demerit goods, would continue to be collected till March 2026 to repay the borrowings that were done in 2020-21 and 2021-22 to compensate States for GST revenue loss.
- In order to meet the resource gap of States due to short release of compensation, the Centre borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loan to partly meet the shortfall in cess collection.
- Goods and Services Tax (GST) was introduced with effect from July 1, 2017, and States were assured of compensation for the loss of any revenue arising on account of implementation of GST for a period of five years.
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