Maximum GST rate may be raised ahead of expiry of compensation cess in April
The maximum permissible goods and services tax (GST) rate is likely to be raised to 60 percent, up from the current 40 percent, to account for the revenue loss arising from the expiry of the compensation cess on April 1, 2026, multiple government sources said.
The group of ministers (GoM) on compensation cess has more or less reached consensus to merge the levy with GST rates — a key step that will ensure that the tax on high-revenue items such as automobiles, tobacco, and aerated drinks remains unchanged even after the cess is withdrawn. “The GoM has more or less reached a consensus to merge the cess with the GST rates,” a government source told Moneycontrol.
“After March 2026, the cess cannot continue. So, rates will have to be increased to maintain the same revenue. An amendment will be needed since the current maximum GST rate that can be levied is 40 percent. This is likely to be raised to 60 percent,” a second government source said.
The GST compensation cess — levied over and above the standard 28 percent rate on selected sin and luxury goods — was introduced to compensate states for revenue losses after the rollout of the tax in July 2017.
With all borrowings under the compensation mechanism expected to be repaid, the cess will be discontinued from March.
At present, the highest slab under GST is 28 percent, and the maximum rate permitted under the law is 40 percent, though it has not been utilised yet. However, the effective tax burden on several items is significantly higher due to the compensation cess.
Compensation cess, which is in addition to the GST, on high-end motor vehicles such as SUVs is at 22 percent. Aerated drinks have a cess of 12 percent.
