GST Composition Cess

Compensation Cess is a type of indirect tax imposed under the Goods and Services Tax (GST) system in India. It is levied to provide compensation to states for any revenue losses incurred during the transition to the GST regime. Compensation Cess is primarily applicable to certain goods and services that fall under the category of demerit or luxury items. Here are key features, applicability, and details regarding Compensation Cess in GST:


Compensation Cess is generally applicable to goods and services that are considered demerit or luxury items, such as tobacco products, pan masala, aerated drinks, and automobiles.

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Rate of Cess:

The rates of Compensation Cess vary based on the type of goods or services. The rates are determined by the GST Council and may be subject to changes based on the economic situation and revenue requirements.

Utilization of Compensation Cess:

Compensation Cess collected is primarily intended to compensate states for revenue losses due to the implementation of GST. The funds collected under Compensation Cess are credited to the Compensation Fund.

Compensation Fund:

The Compensation Fund is maintained by the Central Government, and the funds are disbursed to states to compensate for any revenue shortfall. The disbursement is done on a bi-monthly basis.

GST Council’s Role:

The GST Council, which consists of representatives from the central and state governments, plays a crucial role in deciding the rates of Compensation Cess and any revisions needed.

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Periodic Reviews:

The rates of Compensation Cess and the list of goods and services to which it applies are subject to periodic reviews by the GST Council, and adjustments may be made based on economic conditions and revenue requirements.

Goods and Services Subject to Compensation Cess:

Some examples of goods and services subject to Compensation Cess include cigarettes, tobacco products, aerated drinks, cars, and pan masala.

It’s important to note that the specific rates and applicability of Compensation Cess may be updated by the GST Council, and businesses should stay informed about any changes to ensure compliance with the latest regulations.