The ministerial panel set up by the GST Council to decide the roadmap of the Compensation Cess has deliberated over extending the cess as an additional levy or subsuming it into a higher tax bracket of 28% in its first meeting held earlier this month.
The 10-member committee convened by the MoS Finance Pankaj Chaudhary also explores shifting high-end white goods such as ACs, commercial refrigerators, and dishwashers to standard GST rates from 28% at present.
The panel has been tasked with deciding on the taxation of luxury, sin and demerit goods once the compensation cess regime 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 Dec. 31.
The collection from compensation cess was used to compensate states for revenue losses incurred by them post-rollout of GST.
The regime was extended till March 2026 to repay the loan of about Rs 2.69 lakh crore borrowed by the government during the pandemic year.
This was to make up for the losses due to the impact on consumption and demand during those years.
On Sept. 9, the Council decided to set up a GoM to decide the future course of the cess, as the tenure of the regime is ending next fiscal.
"The Terms of Reference of the GoM is to make a taxation proposal to replace compensation cess after its abolition," the GST Council Secretariat said in an office memorandum.
According to an internal estimation, the loan would be repaid by January 2026—two months before the compensation cess regime ends.
The collection from the compensation cess in February and March 2026 is estimated to be Rs 40,000 crore. The state panel will also look into how to equally share the amount between the Centre and States.
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