'No Centre Vs States': Sitharaman On Compensation Cess Discontinuation, Revenue Dip Concerns

Finance Minister Nirmala Sitharaman dismissed the "Centre versus states" narrative as she cleared air surrounding the discontinuation of compensation cess and potential revenue fall for states at the NDTV Profit GST Conclave on Tuesday.

The compensation cess, an additional levy on select goods and services, was rolled out for five years in 2017 with the aim to compensate the state governments following the rollout of GST.

Since June 30, 2022 compensation to states ended, Sitharaman said. "In 2022, we could not pay states any compensation because we had to borrow," she added, while noting that to ensure the borrowing is repaid, the collection of compensation cess had to be continued.

The compensation cess being collected right now will go into repaying the loans availed during the Covid-19 pandemic period, the finance minister explained.

Sitharaman said that she would "like to correct state FMs" when they say that their revenue will come down. This can be offset through "better collection efficiency", which will improve overall collections.

If states lose revenue, then the Centre will lose revenue too, Sitharaman said, adding that " the Centre versus states is not the point here, all of us are together in it".

Sitharaman stated that GST compensation collection will end in this calendar year. Earlier, it was expected to continue till March 2026, as per the indications received in the previous GST Council meetings. However, the last meeting "gave us clarity" to end it in 2025.

While speaking at the NDTV Profit GST Conclave, Sitharaman said the planning of the GST reforms was initiated around one-and-a-half years ago. She credited Prime Minister Narendra Modi for regularly nudging the finance ministry to proceed with the overhaul of the indirect taxation reg

Modi reminded for the overhaul of GST regime following the massive cuts in income tax announced during the presentation of 2025-26 Union Budget in February, Sitharaman said.

Under the revised GST regime, the tax slabs have been reduced to two — 5% and 18% — as against the four slabs of 5%, 12%, 18% and 28% earlier. This has led to a reduction in taxation rates on most of the products and services.