Government Scraps Compensation Cess Effective from Sept 22, 2025 [Read Notification]

The Ministry of Finance has released a notification (Notification No. 02/2025-Compensation Cess (Rate) dated 17th September, 2025) to further amend the earlier notification issued by the Ministry of Finance (No. 1/2017-Compensation Cess (Rate), dated the 28th of June) regarding the levy of compensation cess.

The compensation cess is an additional tax collected on some specific goods and services to compensate the states for the revenue loss after the introduction of GST in 2017. The cess was applied on sin goods and luxury goods such as tobacco products, aerated drinks, and high-end motor vehicles.

This GST compensation cess is being removed from September 22, 2025, with the start of a new GST regime in India. Therefore, in the notification, the central government, based on the recommendations of the GST council, has announced to remove the cess on many items that earlier attracted Compensation Cess. Now, for several items listed in the Schedule, including S. No. 2, 3, 4, 4A, 4B, 39, 40, 41, 42, 47, 48, and 50 to 55, the cess rate has been changed to “Nil.” The changes will apply from 22nd September 2025.