GST Council likely to discuss cess, status of rate rationalisation on September 9: FM Sitharaman

GST compensation cess has been extended until March 2026

The upcoming GST Council meeting on September 9 is expected to focus on two crucial issues - the status of rate rationalisation and the future of the compensation cess, Union finance minister Nirmala Sitharaman said.

“In the September 9 meeting, the officers of the GoM (Group of Ministers) on rate rationalisation will give a status report. In the GST Council meeting after that, the GoM may submit recommendations,” Sitharaman stated.

The GoM on rate rationalisation, chaired by Bihar’s deputy chief minister Samrat Chaudhary, includes Uttar Pradesh finance minister Suresh Kumar Khanna, Goa transport minister Mauvin Godinho, Rajasthan medical and health services minister Gajendra Singh, West Bengal finance minister Chandrima Bhattacharya, Karnataka revenue minister Krishna Byre Gowda and Kerala finance minister K N Balagopal.

The reconstituted GoM, which held its first meeting on August 22, is reportedly against merging the current tax slabs. “The GoM is of the view that the current four slabs should be retained. This recommendation on the merger of slabs will also be put before the Council in the September 9 meeting,” a source had earlier told Moneycontrol.

Addressing the issue of GST compensation cess, which has been extended until March 2026, Sitharaman clarified that all loans taken to bridge revenue shortfalls during the pandemic would be repaid before that deadline.

“The GST Council may discuss what is to be done with the compensation cess in the next meeting,” she noted.

The cess, an additional levy imposed on certain goods and services, has played a pivotal role in compensating states for revenue losses incurred due to GST implementation. However, during the Covid-19 pandemic, GST collections plummeted, prompting the central government to borrow Rs 1.1 lakh crore in FY21 and Rs 1.59 lakh crore in FY22 to ensure states received the guaranteed 14 percent growth in tax revenue.

While states were compensated only for the five-year protected revenue period till June 2022, the GST cess was extended to March 2026 to repay these loans. What happens post-April 2026, when the cess is set to expire, remains a critical decision for the GST Council.

The outcomes of these discussions will have significant implications for the overall GST framework, particularly for state governments, who are keenly interested in the future of the compensation cess.