GST Compensation Cess


  1. 1. What is GST Compensation Cess?
  2. 2. Why is GST Compensation Cess levied?
  3. 3. Who is liable to collect GST Cess?
  4. 4. Which goods will attract GST Cess?
  5. 5. What is the GST Cess Rate applicable on these goods?
  6. 6. How to calculate GST Cess?
  7. 7. Can input tax credit be availed on GST Cess paid on inward supplies?

1. What is GST Compensation Cess?

GST Compensation Cess is a levy which will be applicable in addition to the regular GST taxes (CGST + SGST/UTGST on intrastate supplies and IGST on interstate supplies). GST Cess will be levied on supply of certain notified goods – mostly belonging to the luxury and demerit category. In order to understand what is GST Cess and the GST Cess meaning, one needs to understand the primary purpose why the GST Council has instituted this additional levy.

2. Why is GST Compensation Cess levied?

The GST Cess is levied to compensate states who may suffer any loss of revenue due to the implementation of GST, as per the provisions of the GST Compensation Cess Act. As GST is a consumption based tax, the state in which consumption of goods or services happens will be eligible for the revenue on supplies. As a result, manufacturing states like Maharashtra, Tamil Nadu, Gujarat, Haryana and Karnataka are expected to face a decrease in revenue from indirect taxes. In order to compensate these states for this loss of revenue, GST Cess will be levied on supply of certain goods, which will be distributed to these states, to bridge any potential tax revenue gaps. The GST Cess will be levied for the first 5 years of the GST regime.

3. Who is liable to collect GST Cess?

All taxable persons supplying the notified goods (except composition tax payers) should collect and remit the GST Cess.

4. Which goods will attract GST Cess?

Items GST Rate Applicable GST Cess Range GST Cess Ceiling
Coal 5% INR 400 / tonne INR 400 / tonne
Pan Masala 28% 60% 135%
Tobacco 28% 61% – 204% INR 4170 / thousand
Aerated Drinks 28% 12% 15%
Motor Vehicles 28% 1% – 15% 15%

5. What is the GST Cess Rate applicable on these goods?

The GST Cess rate list for the above mentioned goods, is available here .

6. How to calculate GST Cess?

The GST Cess should be calculated on the transaction value. The GST Cess should be levied in addition to the GST taxes i.e. CGST + SGST/UTGST in case of intrastate supplies and IGST in case of interstate supplies.

7. Can input tax credit be availed on GST Cess paid on inward supplies?

Yes, input tax credit can be availed on GST Cess paid on inward supplies of the above mentioned notified goods. However, the credit of GST Cess paid can be utilized only towards payment of the GST Cess liability.

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