GST Council May End Compensation Cess By Oct 31, Big GST Reform Plan On Cards

New Delhi: The Goods and Services Tax (GST) Council will meet on September 3, where it may decide to end the compensation cess much earlier than planned. The cess, which was originally scheduled to continue till March 2026, could now be withdrawn by October 31.

The cess was introduced in 2017 to help states recover revenue losses after GST replaced several indirect taxes. Initially, it was to run only for five years, but the Covid-19 pandemic forced the Centre to extend it till 2026. During the pandemic, the Centre borrowed Rs 2.69 lakh crore on behalf of the states and used cess collections to repay these loans.

Loan repayment almost complete

According to reports, repayment of the loans will be completed around October 18. To ensure smooth transition, the cess may be collected till the end of October. After that, it will be discontinued. Sources suggest the collection may leave a surplus of Rs 2,000–3,000 crore, which will be shared equally between the Centre and the states.

Major GST reform on rates

At the same meeting, the Council is also expected to discuss a major reform in GST rates. The Finance Ministry has suggested replacing the current four tax slabs with just two rates — 5 percent and 18 percent.

Prime Minister Narendra Modi has said that this change will bring down prices of goods and services, especially benefiting the poor and the middle class. He described it as a “Diwali double bonus” for citizens.

Why it matters

For consumers, ending the cess and reducing GST slabs could mean cheaper goods and simpler tax rules. For states, it will end the special compensation system but they will still benefit from shared GST revenues.