The Group of Ministers (GoM) on compensation cess, headed by Union Minister of State for Finance Pankaj Choudhary, has recommended ending the levy of the cess by October 31, 2025. The final report, placed before the GST Council, marks a crucial step in shaping the post-compensation regime amid mounting concerns from states over revenue stability.

In three rounds of deliberations, the GoM addressed key questions on the cess’s future and the management of un-utilised funds. It was agreed that any surplus remaining in the compensation cess account at the end of the transition period would be shared equally between the Centre and states, in line with Section 10(3) of the GST (Compensation to States) Act, 2017.

States including Tamil Nadu, Karnataka, and Punjab, however, urged caution against a complete abolition, citing the risk of widening fiscal gaps. In response, the GoM has proposed two alternatives for the Council’s consideration.

The first option is to merge goods currently under the cess into the broader GST framework, with appropriate rate adjustments to be worked out by the Council. The second is to continue the cess in the form of an additional levy, earmarked to compensate states for revenue losses from GST implementation. West Bengal has further argued that Section 9 of the CGST Act would need amendment to make this additional levy legally tenable.

The final decision now rests with the GST Council, which will deliberate on September 3–4.

Collections from the compensation cess up to July 2025 have already touched Rs 50,175 crore. On current trends, revenues are expected to climb to about Rs 88,000 crore by October 2025.

Source: Business Today