Punjab demands for Continuation of GST Compensation Cess beyond March 2026

Punjab Finance Minister Harpal Singh Cheema urged on Monday that the goods and services tax (GST) compensation cess regime be extended beyond March 31, 2026, to allow states to offset income losses incurred by other taxes that are subsumed under GST.

The recommendation was put forward at a Group of Ministers (GoM) meeting on compensation cess, which Cheema attended via video conference.

He highlighted that the GST Council, under the Goods and Services (Compensation to States) Act 2017, has the authority to recommend extending the compensation period beyond five years, citing Punjab’s significant and permanent revenue loss as a result of the subsumption of the purchase tax on foodgrains into the GST.

“This tax was an essential contributor to the state’s revenue in the pre-GST era,” he said.

Cheema further noted that the tax rate on goods under the Value Added Tax (VAT) regime was much higher than the GST rate.

Noting that this mismatch has resulted in significant income loss for the state, he emphasized the importance of maintaining the GST Compensation Cess regime to solve these financial issues and safeguard the financial stability of states such as Punjab.

Cheema’s call to action resembles the broader concerns of several states that have suffered comparable revenue losses as a result of implementing GST. His approach is to ensure that states are fairly rewarded for their financial losses so that they are able to keep providing essential services and development efforts to their citizens.

The Finance Minister’s strong support for extending the GST Compensation Cess regime demonstrates the Bhagwant Singh Mann-led Punjab government’s commitment to protecting the state’s financial interests.

Cheema said on Sunday that the state had a 62.93% increase in net GST collection in November 2024 compared to the same time previous year. Furthermore, the total net GST collection up to November this financial year represents a 10.3% rise over the same period previous year, he added.