The GST Council meeting held on September 9 approved the formation of a Group of Ministers (GoM) to assess the future of the compensation cess, which is set to continue until March 2026. The GoM will play a crucial role in deciding the trajectory of the cess beyond this period, including the allocation of an additional Rs 40,000-crore surplus collected after adjusting for loans and interest, Finance Minister Nirmala Sitharaman said.

“The issue of compensation cess beyond March 2026 will be decided by the GoM,” Sitharaman stated during a media briefing following the meeting. She emphasised that while the cess will continue until March 2026, the GoM will decide if its purpose and structure may change thereafter. “If the cess has to be collected after March 2026, it cannot be called Compensation cess. So the GoM will decide on the purpose of the cess and other details for the period after March 2026,” she added.

Revenue Secretary Sanjay Malhotra also weighed in on the matter, clarifying that the cess was initially extended to service GST loans. “The Compensation cess was extended only to pay back GST loans. Once the payment gets cleared by or before March 2026, there can be no collection of cess for Compensation purposes,” Malhotra said. The cess was earlier approved by the Council to be continued until March 2026 to repay back-to-back loans and service the associated interest.

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Sitharaman revealed that the projected surplus from the cess, after clearing the loans, stands at approximately Rs 40,000 crore. The GoM will be tasked with determining the best course of action for this surplus and deciding on the future role of the cess. “By January 2026, we will be able to clear the loans. The GoM will discuss the compensation cess and how to proceed with the projected surplus,” Sitharaman confirmed.

The decision on the future of the compensation cess is expected to be finalised before March 2026, as the GoM works on a comprehensive strategy for the future of the cess beyond the current deadline.