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Compensation Cess Under GST- All You Need To Know

In this context, you will be covered with all the fine details about the GST compensation cess. Keep going through the words to see the details. Hope this guide helps you.

GST compensation cess has been imposed by the Goods and Services Act, 2017. The main moto for imposing the cess was to compensate Indian states for all the loss of revenue due to the enforcement of GST on 1st July 2017for a period of five years. Somewhat, the GST causes a huge loss to the revenue for manufacturing-heavy states. Here are a few more pros and cons of GST which you should know.

Who has the need for piling up the GST compensation rate?

All of the registered taxpayers, who are connected with supplying selected goods and other services will collect this compensation cess under GST. Though exporters and composition taxpayers are exempted from this compensation cess. Sometimes, this compensation cess will be charged to a few items that have been imported to India.

If by mistake, the compensation cess has been paid on the export, the exporter has the right to claim the refund for the same.

List of goods and services that come under the compensation cess under the GST

Here we will provide the list of all the goods and services that come under the compensation cess under the GST.

Goods                                             GST compensation rate

Tobacco that hasn’t been produced (with a lime tube) but bears a brand name65%
Tobacco that hasn’t been produced (and doesn’t have a lime tube) but has a brand name.71%
Pan Masala60%
Branded tobacco refuse61%
Cheroots and Cigar21% or 4170 per thousand, whichever will be the higher
CigarillosWhichever is higher, 21% or 4170 per thousand, will be the result.
Cigarettes containing tobacco except filter cigarettes, which length is not more than 65mm5% + 2076 per thousand
Besides filter cigarettes, tobacco cigarettes have a length of much more than 65mm or up to 75mm.5% along with 3668 per thousand
Cigarettes of tobacco substitutesRs.4006 per thousand
Branded ‘hookah’ or ‘gudaku’ tobacco72%
Chewing tobacco (without lime tube)160%
Chewing tobacco (with lime tube)142%
Pan masala which contains tobacco204%
Except for pan masala, which includes tobacco ‘gutkha,’ all commodities bearing the trademark name96%
All commodities without a brand name, with the exception of pan masala, which includes tobacco ‘gutkha.’89%
lignite, coal, ovoids, lump charcoal, and comparable solid fuels made from coal power, coal, whether agglomerated or not, except jet, paddy whether agglomerated or not400 per tonne
Aerated waters12%
Automobiles for the transportation of no more than 13 people, including the driver.15%
Following section 2 of the Automobile Licence Act, all motor vehicles in the UK, excluding ambulances, three-wheelers, and vehicles with an engine capacity of less than 1200cc and a length of less than 4000 mm, are classified as commercial vehicles by the Central statistical Office Standardisation (ONS) (MoS).15%
Motor vehicles powered by petrol, liquefied natural gas (LPG), or natural gases (CNG) with an engine size of less than 1200cc and a length of less than 4000mm.1%
Diesel-powered vehicles with a displacement of less than 1500cc and a length of less than 4000mm.3%
Vehicles with a maximum engine size of 1500 cc17%
Motor vehicles of engine capacity exceeding 1500 cc other than motor vehicles specified against entry at S. No 52B20%
Apart from automobiles listed against entrance at S. No 52B, motor vehicles with engine capacities exceeding 1500 cc22%

How can you take use of the compensating cess Input Tax Credit?

The compensation cess input tax credit can only be used to offset the compensation cess obligation that arises as a result of external supply.

How to calculate  the compensation cess under GST?

A compensation cess is levied in addition to the amount of GST payable on a specific supply. The method is identical to that of GST in that the approved rate is applied to the transactional value determined per section 15 of something like the CGST Act 2017 to establish the cess liability.

Steps to measure the compensation cess under the GST

Step 1: Foundation revenue equals the state’s tax revenue in fiscal year 2016-17.

Step 2: Assume a 14 percent growth rate and compute predicted income for each financial year, which will be changed every five years.

Step 3: Afterwards, for each financial year, begin computing the Compensation due. This procedure is projected to stay in force until July 1, 2022.

  • On fixed products only, the Terms Of cost control Cess is collected in addition to the ordinary GST.
  • It must be provided by all taxpayers who have registered. Manufacturers and combination taxpayers are the only ones that are exempt.
  • The GST compensation cess is now only in place for the very first 5 years of the GST administration (i.e. until July 1, 2022) to reimburse manufacturing-heavy states that may experience losses as a result of the GST’s expenditure character.
  • The GST Act of 2017 specifies the mechanism and procedures for calculating the compensating cess due to states.
  • Every two months, the compensation sum that has already been collected is distributed to the states.
  • Any money left over from the fund to pay at the completion of both the transition time will be split among the provinces and the centre according to a formula that has been devised.

The Bottom Line

So, these are the specifics of the compensation cess imposed under the GST Act of 2017. I hope this article has helped you grasp all of the finer points of the compensation rate.

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