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Informist, Thursday, Sept. 4, 2025

 

--Sitharaman: See compensation cess collection ending by end 2025 
--Sitharaman: To continue with compensation cess till GST loans are repaid 
--Sitharaman: GST compensation cess to continue till repayment of loan done 
--Sitharaman: Addressed issues of compensation cess at GST Council meet

 

NEW DELHI – The GST Council on Wednesday decided to continue with compensation cess on tobacco-related products till the GST-related loans are repaid, Finance Minister and Chairperson of the Council Nirmala Sitharaman said. After concluding the 56th meeting of the GST Council, Sitharaman said, "the Union finance minister and Chairperson of the GST Council is authorised to decide on the date of transition for these tobacco-related products as soon as the loan and interest is clear."

 

The cess was introduced to bring states on board to adopt the GST regime in 2017. Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion in loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic. Sitharaman said she expects the loan to be repaid by December-end. "I cannot speculate on the timeline, whether it is October or November, but it will be well within this calendar year," she said.

 

"It will continue on tobacco and tobacco-related products over and above the 28%, which is the prevailing system, till such a time that we repay the loan and after that there will not be a cess. Those items which were with compensation cess have already been proposed to be at 40?cause they are sin goods. 40% is not part of the scheme of things, it is at the extreme, no other good will go there except for these tobacco-related products," Sitharaman said while addressing a press conference after the meeting late Wednesday.

 

At the time of introducing GST, the Centre had promised to protect 14% revenue growth for states for the first five years by levying compensation cess on certain luxury goods such as motor vehicles, expensive motorcycles, caffeinated beverages and sin goods such as tobacco items, pan masala.

 

"Pan masala, gutkha, cigarettes, chewing tobacco will continue at the existing rates of GST and compensation cess where applicable till the loan and interest payment obligations under the compensation cess account are completely discharged," she said.

 

The GST Council, in it's 54th meeting held in September last year, had decided to form a panel to determine the future of compensation cess once its levy stops in March 2026. The panel was headed by Minister of State for Finance Pankaj Chaudhary and had representation from Punjab, Madhya Pradesh, Assam, Chattisgarh, Karnataka, Tamil Nadu, West Bengal, Gujarat, and Uttar Pradesh.

 

A senior finance ministry official said the total tax incidence on tobacco-related products will not be allowed to fall after the GST-related loans are repaid. "A mechanism will have to be brought in so that the tax incidence is maintained at the current level. However, that mechanism will be formulated by the Centre and GST Council will not be involved with that," the official said.  

 

At the end of its landmark meeting, the GST Council Wednesday approved a move to a two-slab goods and services tax rate structure with a new special tax of 40% to be effective from Sept. 22. The GST approved the two-tier rate structure of 5% and 18%.  End

 

Reported by Sagar Sen and Priyasmita Dutta

Edited by Vandana Hingorani

 

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