Extension of the period-Levy and Collection of Cess till March 31, 2026. Central Government has notified the extension of the period for levy and collection of Cess till March 31, 2026.
The Cess collection over the next three years will be used for servicing the loans taken by the Center to compensate the States for the revenue shortfall.
The compensation Cess was initially imposed for five years i.e. till June 2022 on luxury and sin goods to compensate the States for the revenue shortfall in 14 percent revenue growth for the initial five years on giving up their taxation powers for implementing GST.
The revenue augmentation panel had first flagged the shortage of compensation Cess for reimbursing to the States in 2019.
In October 2020, the GST Council had agreed to extend the levy of compensation Cess levy beyond June 2022 to repay the loans taken to compensate the States.
Center's fine print - Two options, One Choice: Go borrow Option 1: borrow ₹ 97,000 cr and get RBI special window coordinated by Center + no debt servicing by the State Option 2: borrow ₹ 2.35 lakh cr via the issue of market debt + pay interest from State resources.
With a change in its stance, the Union Government approached States for authorisation to borrow funds which will be passed on to the States as a back-to-back loan in lieu of GST compensation Cess.
In September 2021, the Council had agreed to extend the levy and collection of the Cess till March 2026 for the specific purpose of repaying the loan.