The Goods and Services Tax Council (GST) will meet soon with a heavy agenda. According to an official source, the Centre-state council will discuss the much-awaited rate rationalisation, simplification and the future of compensation cess.
“There are three or four different aspects relating to making GST simpler. We will take up the issue of compensation cess, rate rationalisation and simplification,” a source said.
The Council, chaired by union finance minister, will examine the group of ministers (GoM) report on rate rationalisation to give further relief to people through rate reductions and rejig of the number of slabs. The GoM headed by Bihar deputy chief minister Samrat Chaudhary submitted its report in December 2024.
While there is no word yet on when the meeting date, it could be scheduled in June-July. On the table would be a proposal to reduce the health and life insurance tax rate to 5% from 18% while retaining the input tax credit.
While as per the rules, the Council has to meet quarterly, the meeting has been delayed as the government was busy with budget and later in the Operation Sindoor. The last meeting was in December 2024.
Currently, there are four major GST slabs – 5%, 12%, 18% and 28%. The Central Board of Indirect Taxes & Customs (CBIC) was assessing the feasibility of the GST slab rejig by merging 12% and 18% to a single rate of 14% or 15% or 16% with revenue implications in each scenario.
The GoM on Compensation Cess, headed by Minister of State for Finance Pankaj Chaudhary, is looking into the future of compensation cess beyond March 2026.
As of now, the cess is being levied on luxury and sin goods but is being utilised only for paying back loans taken during the Covid to make good the loss to states in guaranteed GST revenues.
The GoM would be suggesting how to retain the revenue from cess in some form and how it is to be shared between the Centre and the states.
As per the calculations, the interest and principal of the Rs 2.69 lakh crore loan would be repaid by January 2026. The collection from the compensation cess in February and March, 2026 is estimated to be Rs 40,000 crore.
The GST law provides that any additional amount collected in the compensation cess pool would be divided equally between the Centre and states.
The GST Council would also have to decide whether it would continue with the compensation cess till March 2026 or end it by January 2026 or as and when the loan is repaid, and bring in the new taxation proposal as per the suggestions of the GoM on GST compensation cess.