Upcoming GST Council Meeting to Reconsider Compensation Cess and Slab Restructuring
GST Council to Address Rate Revisions and Compensation Cess in Upcoming Meeting
The GST Council is set to convene soon with a comprehensive agenda that includes discussions on rate rationalisation, simplification, and the future of the compensation cess. Key proposals on the table involve amalgamating the existing 12% and 18% tax slabs, reducing the GST on insurance to 5%, and determining the continuation of the cess following loan repayments scheduled for January 2026.
The Central Board of Indirect Taxes & Customs (CBIC) is currently evaluating the practicality of consolidating the 12% and 18% slabs into a single rate, which could be set at 14%, 15%, or 16%, each carrying distinct revenue implications.
As reported by an official source, the Council, overseen by the Union Finance Minister, plans to review the recommendations from the group of ministers (GoM) who focused on rate rationalisation. Their aim is to provide financial ease to citizens through potential rate cuts and adjustments in the number of GST slabs. The GoM, led by Bihar’s Deputy Chief Minister Samrat Chaudhary, submitted their findings in December 2024.
While a specific date for this meeting has yet to be announced, it is anticipated to occur sometime in June or July. Among the proposals is a reduction of the tax rate on health and life insurance from 18% down to 5%, while still allowing for input tax credit.
Although the GST Council is traditionally expected to meet quarterly, recent delays resulted from governmental commitments to the budget and Operation Sindoor. The last convening took place in December 2024.
Currently, the GST structure comprises four main tax slabs: 5%, 12%, 18%, and 28%. The feasibility of merging the 12% and 18% slabs into either 14%, 15%, or 16% is being thoroughly assessed by the CBIC.
The GoM on Compensation Cess, chaired by the Minister of State for Finance, Pankaj Chaudhary, is deliberating on the future of the compensation cess beyond March 2026. Currently, this cess applies to luxury and sin goods but specifically serves to repay loans incurred during the pandemic, aimed at compensating states for shortfalls in guaranteed GST revenues.
The GoM will propose methods to maintain revenue from the cess and outline its distribution between the Centre and the states. Projections indicate that the principal and interest from the substantial Rs 2.69 lakh crore loan should be repaid by January 2026, with anticipated collections from the compensation cess in February and March 2026 amounting to approximately Rs 40,000 crore.
The GST framework stipulates that any surplus generated within the compensation cess pool is to be equally split between the Centre and the states. The GST Council also faces the decision of whether to extend the compensation cess until March 2026, terminate it by January 2026, or discontinue it upon loan repayment, potentially introducing new tax proposals based on the GoM’s insights regarding the compensation cess.
