The Goods and Services Tax (GST) Council has formed a 10-member panel on taxing luxury, sin and demerit goods once compensation cess ends in March 2026.
The panel, chaired by minister of state for finance Pankaj Chaudhary, will submit its report by December 31. It will consider whether to continue the cess or impose additional taxes.
The cess, levied at different rates on luxury, sin and demerit goods, was introduced to compensate states for revenue losses incurred after the GST rollout. The Group of Ministers (GoM) includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and Bengal.
In 2022, the Council extended the levy till March 2026 to repay the interest and the principal of the 2.69-lakhcrore loan taken in the 2021 and 2022 fiscal years to make good the revenue loss of states during the Covid years
With just one-and-a-half year remaining for the cess to end, the GST Council in its 54th meeting on September 9 decided to set up a GoM to decide the future course of the cess
"The Terms of Reference of the GoM is to make taxation proposal to replace compensation cess after its abolition," the GST Council Secretariat said in an office memorandum
The task before the GoM is quite critical as it would have to suggest whether the levy would continue as cess or an additional tax
If it is called cess, the collection would go to the Centre.
If the GoM decides not to levy cess but impose additional taxes on luxury, sin and demerit goods, it has to suggest the rates and ensure legislative amendments.
Goods and services tax (GST) is a four-tier tax structure with slabs at 5, 12, 18, and 28 per cent. However, as per GST law, tax of up to 40 per cent can be imposed on goods and services.
The collection from the compensation cess in February and March, 2026 is estimated at 40,000 crore.
Meanwhile, the ministerial panel to decide on lowering goods and services tax (GST) on health and life insurance premiums will have its first meeting on October 19.
Currently, 18 per cent GST is levied on insurance premiums and there have been demands to either exempt or reduce the tax.
