GoM Requests Extension for GST Compensation Cess Report
The Group of Ministers (GoM) on GST compensation cess has announced plans to request a 6-month extension for finalising their report. Initially set for December 31, the extension reflects the complexity of discussions surrounding the cess’s future. Minister of State for Finance and GoM Chairman, Pankaj Chaudhary, highlighted the need for more time due to ongoing deliberations.
The GST Council will review this extension request in its upcoming meeting. If granted, the new deadline will likely fall around mid-2025.
Why Was the GST Compensation Cess Introduced?
When GST was rolled out in July 2017, states feared potential revenue shortfalls. To address this, the central government introduced the GST compensation cess. Initially, this cess was supposed to last only 5 years (till June 2022). However, the pandemic-induced economic slump forced the government to extend it until March 31, 2026 to repay loans taken to bridge GST shortfalls.
What Does the Extension Mean for States?
States rely heavily on the GST compensation cess to balance their budgets. The extension request reflects ongoing challenges in devising a new compensation framework. If the extension is approved, states will have a clearer picture of their financial roadmap. Without it, they could face revenue uncertainty.
📃 Cess Collections: The Current Scenario
Cess collections in FY24-25 have shown a moderate rise:
| Period | Collections | Growth Rate |
|---|---|---|
| April-November FY24-25 | Rs 1.01 lakh crore | 6.5% |
| Budget Estimate (BE) | Rs 1.51 lakh crore | 4.1% |
To meet the target, the government needs to collect an average of Rs 12,500 crore monthly over the next 4 months — a target that aligns with current trends.
Infrastructure: A Key Focus
The extension of the GST compensation cess also ties into India’s broader infrastructure goals. With capital expenditure increasing from Rs 5 lakh crore (FY21-22) to Rs 11.11 lakh crore (FY24-25), the government aims to boost economic growth through improved connectivity and infrastructure projects.
Minister Chaudhary reiterated that infrastructure development remains central to achieving the Vision 2047 of a developed India.
What’s Next for the GST Compensation Cess?
- Extension Decision: The GST Council’s decision on the GoM’s extension request.
- New Framework: Possible redesign or renaming of the cess beyond 2026.
- State Budgets: How states will adjust their budgets based on the final decision.
The road ahead for the GST compensation cess will impact both state finances and national infrastructure projects. Stay tuned for updates as the GST Council deliberates on this crucial issue.