Introduction
The two new GST levies may soon replace the compensation cess, a move under discussion since the GST Council meeting in 2025. This blog explains why this change is happening, what it means for states and taxpayers, and the possible costs businesses must prepare for.
Why is Compensation Cess Being Replaced?
- The 5-year GST compensation promise ended on June 30, 2022.
- States have demanded continued funding for revenue shortfall.
- The Centre is considering two alternative levies to meet this demand without burdening general taxpayers too much.
Reference: As per PIB Release, the Council formed a Group of Ministers to examine alternatives.
Possible Structure of the New GST Levies
| Feature | Compensation Cess (Current) | New Levies (Proposed) |
|---|---|---|
| Purpose | Compensate states for revenue loss | Compensate states & fund specific infra |
| Duration | Ended in 2022 (extended for loan repayment till March 2026) | Yet to be finalised |
| Goods Covered | Sin goods: tobacco, coal, aerated drinks, cars | May cover luxury and non-essential items |
| Taxpayer Impact | Direct levy on specified goods | Possible wider base but lower rate |
Legal Basis for Introducing New Levies
- Article 279A: Empowers GST Council to recommend special rates.
- CGST Act Section 18: Allows special provisions for compensation.
- The new levies must pass Parliament as a separate law or an amendment.
Case Law Insight: In Union of India v. Mohit Minerals Pvt Ltd (2022), the Supreme Court upheld the compensation cess as constitutional, setting precedent for similar levies.
Expert View: What Should Businesses Do Now?
🔹 Monitor Notifications: Any new levy will be notified via CBIC. Stay updated.
🔹 Cost Forecast: If you deal in luxury goods, factor in possible new cess while pricing.
🔹 Consult Your CA: Discuss ways to manage input credit and pass on the cost transparently.
Impact on Consumers and Small Businesses
✅ Higher prices for sin or luxury goods
✅ Small businesses with limited turnover may remain unaffected
✅ States get assured funds without general GST rate hike
FAQs on New GST Levies
Q1: Will new levies affect 5% or 12% rate items?
Probably not. Target is non-essential luxury or sin goods.
Q2: Can states impose their own cess instead?
No. Only Parliament can authorise a national GST levy under GST framework.
Q3: Where to check official updates?
Visit CBIC.gov.in or follow Efiletax for simplified updates.
Summary
Two new GST levies may replace the compensation cess to continue supporting states without raising general GST rates. Businesses in luxury or sin goods segments should prepare for possible additional costs.
Closing
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