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Govt extends GST compensation cess on luxury items extended till March 2026

By Priyanka Verma 
Updated Date

New Delhi: The government has extended goods and services tax (GST) compensation cess to March 2026. Consequently, the cess on luxury and depreciable goods will be collected until March 2026.

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“The period for levy and collection of cess under sub-section (1) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 shall be upto March 31, 2026,” said a notification issued by the government. “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,” said MS Mani, partner, Deloitte India.

The levy of cess was to end on June 30 but the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising State FMs, decided to extend it till March 2026 to repay the loans taken in the last two fiscal years to make up for the shortfall in their revenue collection. The GST Council is set to meet for two days in Chandigarh next week. In spite of demand from some states for an extension of GST compensation beyond June, the Council is unlikely to accept that as the cess is extended to 2026.

Abhishek Jain, partner, indirect tax at KPMG in India, said, “To implement the decision of the GST Council, these Rules have been issued to extend the levy of the compensation cess till March 2026 to cover the shortfall for the earlier period. The issue of whether the states would be compensated beyond five years or not may finally get decided in the upcoming GST Council meeting.“

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