The government has extended the Good and Services Tax (GST) Compensation levy to states by nearly four years to March 2026.
The Good and Services Tax (GST) Compensation levy to states has been extended by nearly four years to March 2026, the Union Finance Ministry said in a notification on Friday.
As per the GST (Period of Levy and Collection of Cess) Rules, 2022, the compensation cess will continue to be levied from July 1, 2022 to March 31, 2026.
The levying of cess regime was to end on June 30. The extension will help the Centre to pay compensation due to states for May and June 2022. It, however, will not benefit states as they won’t get compensation till that period.
GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state FMs, decided to extend it till March 2026 to repay the loans taken in the last two fiscal years to make up for the shortfall in their revenue collection.
The compensation cess, levied on luxury and demerit goods, will 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 has 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 meet a part of the shortfall in cess collection.
MS Mani, Partner, Deloitte India, is of the view that “the extension of the levy of compensation cess, although expected, will continue to impose a burden on the impacted businesses, especially sectors like automotive, which need to be encouraged as it is one of the sectors that has a multiplier effect on GDP and employment.”
The Centre has repaid Rs 7,500 crore as interest cost for the borrowing in 2021-22 and Rs 14,000 crore is to be paid this fiscal year. From 2023-24, the repayment of the principal amount will start which will continue till March 2026.
(With text inputs from PTI)