The Centre has extended the deadline for GST compensation cess levy till March 21, 2026 in order to enable the Centre to pay compensation to states to make up for the shortfall in their revenue collection. The compensation period was about to expire on June 30.
Consequently, the cess on luxury and depreciable goods will be collected until March 2026.
"The period for levy and collection of cess under sub-section (1) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 shall be upto March 31, 2026," said a notification issued by the Centre.
When the government implemented GST on July 1, 2017, it guaranteed states reimbursement for any revenue losses resulting from its implementation for five years. The loss, however, widened due to Covid-19 related loss of economic activity.
"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 have a multiplier effect on GDP and employment," M S Mani, Partner at Deloitte India told DH.
The move that comes close on the heels of the GST Council meeting in Chandigarh next week, is expected to placate states which had demanded extension of the compensation for five more years.
Though the Centre has issued about Rs 2.70 lakh crore as loans to states to cover part shortfall in cess collection, states have said the amount is not enough.
Rajat Mohan, senior partner at AMRG & Associates, said, "The extension of the compensation cess charge will result in increased tax rates being applied to goods including tobacco, cigarettes, hookah, aerated water, high-end motorcycles, aircraft, yachts, and motor cars".
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