India's Goods and Services Tax (GST) Council has extended the GST Compensation Cess levy until 31 March 2026. This decision was taken at the Council's 45th meeting held on 17 September 2021.
The GST Compensation Cess is a levy that was introduced to compensate states for revenue losses incurred due to the implementation of GST. The cess is levied on certain goods and services that fall under the highest 28% GST bracket. The revenue collected from this cess is then used to compensate states for their revenue shortfall.
With the extension of the GST Compensation Cess levy, the Centre will continue to collect this cess for another five years. This move is expected to provide much-needed relief to state governments, which have been facing revenue shortfalls due to the Covid-19 pandemic.
The extension of the GST Compensation Cess levy was recommended by the GST Council's Fitment Committee, which had earlier suggested the extension of the cess for a period of three years until 2024. However, the Council decided to extend it for another two years until 2026.
The decision to extend the levy comes at a time when many states are facing a severe revenue shortfall due to the pandemic. The GST Compensation Cess has become an important source of revenue for many states, and the extension of the levy will provide them with much-needed relief.
The GST Council has also decided to levy the cess on certain goods that were earlier exempt from the levy. These include tobacco substitutes, coal, lignite, and their products. The cess on these goods has been fixed at 11%, which is the same rate as the cess levied on other goods and services that fall under the 28% tax bracket.
The extension of the GST Compensation Cess levy is expected to have a positive impact on the Indian economy. The GST system was introduced in 2017 to simplify India's complex indirect tax system and create a unified market for goods and services. The system has been plagued by various issues, including revenue shortfalls, and the extension of the GST Compensation Cess levy will help address some of these issues.
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