The cess collection which was to expire at the end of June, has been extended by nearly four years to help pay for the liquidity support given to states during the covid period when cess collection was not sufficient to compensate states for their GST revenue losses.

The period of GST cess levy and collection shall be up to 31 March 2026, according to GST (Period of Levy and Collection of Cess) Rules, 2022, notified by the revenue department. The extension of cess is based on the recommendation of the GST Council.

"The extension of the levy of compensation cess, although expected, will continue to impose a burden on the impacted businesses, especially sectors like automotive, which need to be encouraged as it is one of the sectors that has a multiplier effect on GDP and employment," said MS Mani, partner, Deloitte India.

The GST Council is set to meet for two days in Chandigarh next week. In spite of demand from some states for an extension of GST compensation beyond June, the Council is unlikely to accept that as the cess is extended to 2026.

Abhishek Jain, partner, indirect tax at KPMG in India, said, "To implement the decision of the GST Council, these Rules have been issued to extend the levy of the compensation cess till March 2026 to cover the shortfall for the earlier period. The issue of whether the states would be compensated beyond five years or not may finally get decided in the upcoming GST Council meeting."