Introduction to GST Cess
One major contributor to India’s indirect tax system’s simplification is the goods and services tax or GST. The GST was implemented in July 2017 to establish a single national market and replace many federal and state levies. Within this more extensive umbrella of GST is another framework known as GST cess. This GST cess is an additional tax imposed on specific goods and services beyond the GST rate. The money raised from the GST cess is designated for a particular use, either to make up for states’ revenue losses brought on by introducing the GST or to finance specific projects or industries. This is in contrast to the GST, which is collected to support the operations of both the federal and state governments.Type of Cess in GST
The different types of cess which are present in India are mentioned below:- GST compensation cess
- Cess on exports
- National calamity contingent duty on tobacco and tobacco products
- Cess on crude oil
- Building and other construction workers’ welfare cess
- Health and education cess
- Road and infrastructure cess
Legal Framework for Cess in GST
Leveraging and collecting GST cess is governed by Section 8 of the GSTC Act. Using the authority granted by Section 8(2) of the Act above, the Central Government announces the cess rate to be applied to commodities supplied within or between states. On the other hand, notification No. 1/2017-CC(R) dated June 28, 2017, provided a residual entry in Sl. No. 55, prescribing a Nil rate for all items other than those included in the Table, even though it prescribes the rate of cess leviable in respect of a restricted number of suppliers of goods in a tabular format. Similarly, notification No. 2/2017-CC(R), dated June 28, 2017, specifies the cess leviable rate for just three service suppliers. It also includes a residual entry in SI No. 3 specifying a Nil rate for additional services.Laws and Applicable Cess Rules
The Central Goods and Services Tax Act of 2017’s provisions will control the charge and collection of the cess on intrastate supplies of goods and services. Therefore, the rules included assessment, input tax credit, non-levy, short-levy, interest, appeals, offenses, and penalties. Likewise, the Integrated Goods and Services Tax Act’s provisions and implementing regulations shall apply to interstate shipments.Cess Calculation Methodologies
While knowing and understanding cess is essential, learning the GST cess calculation methods can help better comprehend it. Any goods or services that attract GST cess must be calculated based on the supply’s taxable value and by the provided GST cess rate schedule. Similarly, if the GST cess applies to goods imported to India, they will be levied and collected with customs duty and IGST. Let’s see an example for this one. Let us assume the assessed imported value of goods to India is INR 100, GST is 18%, and customs duty is 10%. The IGST tax will be calculated as below: Assessable value = 100 Customs duty = 10% of 100 = 10 Value for the levying IGST = 110 GST – integrated tax = 18% of 110 = 19.80 Total tax = INR 29.80 If this good also attracts GST cess, then the cess will apply to INR 110, as the compensation cess is not levied on IGST.Impact of Cess on Businesses
Taxes always affect ordinary people, and cess is no exception. There is an impact of GST cess on businesses and other stakeholders. Because of the implementation of cess, consumers would eventually face the most burden. They will be asked to pay a higher amount for goods and services falling under the GST cess as businesses will try to put this burden on them. On the other hand, it will also be a challenging journey for businesses. They will have to deal with complex compliance requirements for their goods and services that will attract GST cess. They must carefully calculate and collect cess along with GST while adhering to regulatory guidelines.Examples of Cess Implementation
Let us look at a cess implementation example to help you better understand. Health and education is one cess levied on all taxpayers as a direct tax. At present, the health and education cess is 4%. Considering this, let’s assume that A is earning a specific income subject to taxation at their highest tax slab of 30%. Hence, their effective income tax will be 31.2% {30%+(4% of 30% personal income tax rate)}. Now, if the income of A is INR 10 lakh, the total taxable income will be INR 3,12,000, assuming there are no deductions.Recent Changes and Updates in Cess
There are some recent changes in GST cess rates, and it is expected that this GST compensation may end on certain products sooner than March 2026 due to substantial GST collections. These products are liquor, automobiles, aerated water, cigarettes, and coal. In the five-year transition period ending in June 2022, states have already received the entire provisionally admissible compensation of INR 9.14 lakh crore for their revenue shortfalls. However, the cess has been extended to retire the INR 2.69 lakh crore loan taken out for this purpose during the COVID-19 pandemic. Since the GST collections are robust, the government can repay the debt before the March 2026 deadline. If the GST compensation cess is removed, the products will be cheaper and easier to purchase and use.Compliance and Reporting Requirements for Cess
Compliance with any tax, direct or indirect, is significant. There are specific compliance requirements for GST cess that taxpayers must abide by. Cess is an additional burden on the taxpayers and increases the reporting requirements. The taxpayers must maintain separate records, file, and pay separate dues for their cess. This compliance is one of the challenges with GST cess implementation, especially for people who have to manage and maintain multiple cess records. Multiple cesses include road and infrastructure, health and education, coal, etc. The compliance part also impacts the tax authorities. It increases their workload and is an additional item to take care of. They are required to monitor and handle the cess transfers and collections adequately.GST Compensation Cess Rates – Goods
| Goods | Cess |
| Pan masala | 60% |
| Motor vehicles of 1500cc and above engine capacity, known as SUVs, including utility vehicles | 22% |
| Unmanufactured tobacco with lime tube featuring a brand | 65% |
| Motor vehicles with less than 1500cc engine capacity | 17% |
| Unmanufactured tobacco without lime tube featuring a brand | 71% |
| Diesel-driven motor vehicles with engine capacity not exceeding 1500cc and of length not exceeding 4000 mm | 3% |
| Branded tobacco refuse | 61% |
| LPG, petrol, or CNG-driven motor vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000 mm | 1% |
| Cigar and cheroots | 21% or INR 4170 per thousand, whichever is higher |
| Motor cars and other motor vehicles (including racing cars and station wagons) designed for the transport of persons (excluding motor vehicles for the transport of 10 or more persons, including the driver) | 15% |
| Cigarillos | 21% or INR 4170 per thousand, whichever is higher |
| Aerated water | 12% |
| Cigarettes with tobacco, excluding filter cigarettes, of length not more than 65 mm | 5% + INR 2076 per thousand |
| Coal, briquettes, ovoids, and similar solid fuels manufactured from coal, lignite, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated | INR 400 per tonne |
| Cigarettes with tobacco, apart from filter cigarettes, of length more than 65 mm and up to 75 mm | 5% + INR 3668 per thousand |
| All goods, excluding pan masala containing tobacco ‘gutkha’, not bearing a brand name | 89% |
| Branded gudaku or Hookah tobacco | 72% |
| All goods, excluding pan masala containing tobacco ‘gutkha’, with brand name | 96% |
| Chewing tobacco without lime tube | 160% |
| Pan masala (Gutkha) containing tobacco | 204% |
| Chewing tobacco with lime tube | 142% |
Conclusion
It’s essential to comprehend the GST cess to navigate India’s tax system. A cess is an additional tax imposed on particular goods and services for different objectives, such as supporting sector-specific requirements or financing social programs. For example, the GST compensation cess helps governments compensate for revenue deficits. These examples show how cess functions inside the GST system and emphasize its complex role in supporting socio-economic goals and fiscal policy. Also Listen: How to create E-way Bill With CaptainBizFAQs
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