GST Cess Explained: A Comprehensive Overview
In the complex landscape of taxation in India, the goods and services tax (GST) stands out as a significant reform aimed at simplifying the indirect tax structure. Introduced in July 2017, GST replaced a myriad of central and state taxes, aiming to create a unified market across the country. Within this framework, there exists a mechanism known as GST cess.
What is GST cess?
The cess is an additional levy imposed on certain goods and services over and above standard GST. Unlike GST, which is collected to fund the operations of both central and state governments, revenue generated from GST cess is earmarked for a specific purpose: to compensate states for revenue loss incurred due to the implementation of GST or to fund specific projects or sectors.
The GST regime, aimed to create a single market by subsuming various taxes, led to the elimination of certain revenue streams for states. To mitigate this loss, the GST Compensation Cess was introduced for a transitional period of five years to ensure that states do not suffer financially. The cess fund was used to ensure states received a guaranteed 14 percent growth in their tax revenue under the new indirect tax regime till June 30, 2022.
