The authorities has prolonged the time for levy of GST compensation cess by practically 4 years until March 31, 2026.
As per the Goods and Services Tax (Period of Levy and Collection of Cess) Rules, 2022, notified by the finance ministry, the compensation cess will proceed to be levied from July 1, 2022 to March 31, 2026.
The levy of cess was to finish on June 30 however the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state FMs, determined to increase it until March 2026 to repay the loans taken within the final two fiscal years to make up for the shortfall of their income assortment.
After the forty fifth GST Council assembly in Lucknow in September final 12 months, Sitharaman had stated the regime of paying compensation to states for income shortfall ensuing from subsuming their taxes reminiscent of VAT within the uniform nationwide tax GST, will finish in June 2022.
However, the compensation cess, levied on luxurious and demerit items, will proceed to be collected until March 2026 to repay the borrowings that had been completed in 2020-21 and 2021-22 to compensate states for GST income loss.
In order to satisfy the useful resource hole of states as a consequence of quick launch of compensation, the Centre has borrowed and launched Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back mortgage to satisfy part of the shortfall in cess assortment.
The Centre has repaid Rs 7,500 crore as curiosity price for the borrowing in 2021-22 and Rs 14,000 crore is to be paid this fiscal 12 months. From 2023-24, the reimbursement of principal quantity will begin which is able to proceed until March 2026.
Goods and Services Tax (GST) was launched within the nation with impact from July 1, 2017 and states had been assured of compensation for the lack of any income arising on account of implementation of GST for a interval of 5 years.
Though states’ protected income has been rising at 14 per cent compounded progress fee, the cess assortment didn’t enhance in the identical proportion and COVID-19 additional elevated the hole between protected income and the precise income receipt together with discount in cess assortment.
The Centre has launched your entire quantity of GST compensation payable to states as much as May 31, 2022.
AMRG & Associates Senior Partner Rajat Mohan stated with the extension of levy of compensation cess, merchandise like tobacco, cigarettes, hookah, aerated waters, high-end bikes, plane, yacht and motor automobiles would proceed to be loaded with larger taxes charges.
Deloitte India Partner M S Mani stated, “The extension of the levy of compensation cess, although expected, will continue to impose a burden on the impacted businesses, especially sectors like automotive, which need to be encouraged as it is one of the sectors that has a multiplier effect on GDP and employment.” Abhishek Jain, Partner Indirect Tax, KPMG in India stated, “The issue whether the states would be compensated beyond 5 years or not may finally get decided in the upcoming GST Council meeting.”