GST Update: Major Changes Coming Soon, New Cess Likely to Be Imposed

Updated: 21-06-2025, 11.09 PM

Big changes are on the horizon for India’s Goods and Services Tax (GST) system. After a gap of more than six months, the GST Council is expected to convene in early July, ahead of the upcoming monsoon session of Parliament. Sources indicate that this long-awaited meeting — originally planned for June — has been delayed to accommodate a significant new agenda.

GST

While the official meeting date and full agenda are yet to be announced, reliable sources suggest that key discussions on GST rates and compensation cess will be central to this session.

Compensation Cess Likely to Undergo Major Changes

One of the biggest talking points will be the future of the compensation cess, which is scheduled to expire in March 2026. Currently, some states have expressed concerns that the cess revenues go directly to the Centre. To address this, discussions are underway about potentially merging the cess into standard GST rates, particularly for goods that currently attract cess — such as automobiles, tobacco, and carbonated drinks.

Sources suggest that the Group of Ministers (GoM) on compensation cess supports this merger, which would streamline the GST system and reduce complexity for businesses.

Why Was the Cess Introduced?

When GST was first rolled out on July 1, 2017, the central government agreed to compensate states for any loss of revenue incurred under the new tax regime. Originally, the compensation cess was meant to end by June 2022, but it was extended to March 2026 because the Centre had borrowed funds during the COVID-19 pandemic to help states recover from revenue shortfalls.

New Cess Proposals: Health Cess & Clean Energy Cess

According to sources, the GoM has now agreed to phase out the current compensation cess and introduce new levies instead:

Health Cess — likely to be imposed on “sin goods” such as tobacco products
Clean Energy Cess — proposed for items like coal and luxury automobiles

This would align with broader government objectives to encourage cleaner energy use and promote public health by taxing harmful goods more heavily.

Simplification in the Works

To further simplify the cess structure, the GST Council is also considering forming a dedicated task force of state and central officials. This team would help streamline the process of integrating cess collections with GST rates, ensuring a smoother transition and greater transparency in tax administration.

What This Means for Businesses

If these proposed changes are approved, businesses dealing in sectors like automobiles, tobacco, and energy should prepare for adjustments in their tax liabilities. The potential shift from a separate cess to higher GST rates — along with new Health and Clean Energy Cesses — could reshape pricing strategies and compliance requirements in the months ahead.

Stay tuned for more updates when the GST Council’s July meeting date and final agenda are officially confirmed.

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Kuldeep Singh Chundawat: My name is Kuldeep Singh Chundawat. I am an experienced content writer with several years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.