The GST Compensation Cess Panel, a newly formed Group of Ministers ( GoM ) led by the Union Minister of State for Finance, Pankaj Chaudhary, held its first meeting earlier this month. The panel discussed critical issues regarding the future of the GST compensation cess, which is scheduled to end in March 2026.
One of the main issues under consideration was the recategorization of high-end white goods, such as air conditioners, commercial refrigerators, and dishwashers, which are currently taxed at 28% under GST. The panel was discussing the possibility of changing these goods to standard GST rates, which would effectively reduce the tax burden on these products.
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This potential change could encourage consumption in these sectors while still ensuring the necessary tax revenues are generated. However, no final decisions have been made yet, and the GoM is still exploring the most effective taxation strategy for these goods.
The panel noted that the compensation cess collections are being used to repay Rs 2.69 lakh crore in loans taken to manage the financial struggle caused by the COVID-19 pandemic. This debt is expected to be fully repaid by January 2026.
In addition to repaying the COVID-19 loans, the panel also projects that an additional Rs 40,000 crore will be collected through the compensation cess between February and March 2026. This means the compensation cess will continue to generate revenue beyond loan repayments, potentially allowing for future financial allocations.
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The most important task for the Group of Ministers ( GoM ) is to decide how the compensation cess should be shared between the central government and the states. This is crucial because the cess was originally designed to compensate states for potential revenue losses due to the implementation of the GST.
The panel must now determine a fair system for distributing these funds once the current compensation cess regime ends in March 2026.
The GoM consists of several members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, and West Bengal is scheduled to submit its report to the GST Council by December 31, 2024.
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