GST compensation cess extended till ’26

June 26, 2022 12:00 am | Updated 05:41 am IST - New Delhi

The levy on luxury, demerit goods will be collected 4 more years till March 2026, to repay borrowings

Burden to bear:The levy’s extension will impose a burden on sectors like automotive, says Deloitte’s Mani.K. Pichumani

Burden to bear:The levy’s extension will impose a burden on sectors like automotive, says Deloitte’s Mani.K. Pichumani

The Centre has extended the time for levy of GST compensation cess by almost four years till March 31, 2026.

As per the Goods and Services Tax (Period of Levy and Collection of Cess) Rules, 2022, notified by the Finance Ministry, 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, chaired by Union Finance Minister Nirmala Sitharaman and comprising State FMs, 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 last year, 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.

Principal repayment

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 would start and would continue till March 2026.

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.

Though States’ protected revenue has been growing at 14% compounded growth rate, the cess collection did not increase in the same proportion and COVID-19 further increased the gap between protected revenue and the actual revenue receipts.

The Centre has released the GST compensation payable to States up to May 31.

“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,” said Deloitte India Partner M.S. Mani.

Top News Today

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.