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India’s five-year GST compensation guarantee ended in June 2022, but the compensation cess did not end with it. The cess continued to fund the compensation account’s remaining obligations, including repayment of pandemic-era borrowing and interest. GST Council records set March 31, 2026 as the planned end of the existing levy and said any surplus left after those obligations would be divided equally between the Centre and the states.
That does not establish what happened after March 31, 2026. The official records cited below do not confirm a successor cess, a new compensation guarantee, the exact loan-repayment date or the final surplus. Those points require a later Council decision, government notification or audited account.
The key distinction: a guarantee ended, while a debt-servicing levy continued
GST began on July 1, 2017. Under the Goods and Services Tax (Compensation to States) Act, 2017, states were promised protection against GST-related revenue losses for five years. The protected period ran through June 2022.
Compensation was not an unconditional, permanent transfer. The Ministry of Finance described the formula as revenue growing by 14% a year, compounded from each state’s 2015–16 base-year revenue. If a state’s GST-era revenue fell below that protected path, the compensation system was intended to cover the difference.
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A separate compensation cess was charged on specified goods and credited to a compensation fund. That fund paid eligible compensation. When cess receipts were insufficient, the gap widened sharply during the COVID-19 shock. The later extension of cess collection therefore served a different purpose from the original guarantee: it raised money to clear the compensation account and service borrowing that had bridged the shortfall.
| Period | Legal or policy purpose | Who was meant to benefit | Endpoint recorded in official documents |
|---|---|---|---|
| July 1, 2017–June 2022 | Five-year protected-revenue compensation under the 2017 Act | States facing a shortfall against the 14% annual growth path | The statutory guarantee ended in June 2022 |
| After June 2022–March 31, 2026 (planned) | Continue cess collection to cover remaining account obligations and repay back-to-back loans and interest | Creditors and the compensation account first; any residual balance later shared by the Centre and states | Existing rates were continued to March 31, 2026 by the 55th GST Council decision |
The second period was not a renewed five-year promise of compensation. It was a wind-down and debt-servicing arrangement.
Why the compensation cess continued after June 2022
The cess collections did not keep pace with the protected-revenue amount, and the pandemic made the mismatch larger. To meet part of the shortfall, the Centre borrowed and passed the proceeds to states as back-to-back loans.
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A Ministry of Finance status note dated April 27, 2022 records two major borrowings: ₹1.10 lakh crore in 2020–21 and ₹1.59 lakh crore in 2021–22. The sums were transferred to states as back-to-back loans. They allowed states to receive funds while the compensation account lacked enough current cess receipts.
Because those loans and their interest still had to be serviced, the cess remained relevant after the five-year compensation entitlement expired. The end of the guarantee stopped the protected-revenue obligation; it did not automatically erase liabilities already created to bridge earlier shortfalls.
The Council’s extension decision
The 43rd GST Council meeting on October 5, 2020 approved continuing the cess beyond June 2022 until the relevant shortfall was covered, with the arrangement subject to review. That decision explains why taxpayers continued to see compensation-cess charges after the guarantee’s end date.
The June 2022 payment cleared from central resources
On February 18, 2023, the Ministry of Finance announced ₹16,982 crore for compensation due for June 2022. The compensation fund had no balance, so the Centre released the amount from its own resources and said it would recoup the money from future cess receipts. The government also stated that the provisionally admissible compensation due for the five-year period would thereby be cleared.
This payment did not create a new compensation guarantee. It settled the final period covered by the original five-year arrangement while preserving the plan to recover the outlay through later cess collections.
What changed legally as March 2026 approached
The 53rd GST Council meeting on June 22, 2024 examined the post-2026 position. The Chairperson recorded that the 2017 Act could not support compensation-cess collection after March 2026, while the Council could devise another mechanism. The Council asked for a full account of cess receipts, repayment timing and a proposal for any replacement tax.
“while post March 2026, Compensation cess could not be collected based on the Compensation to States Act, 2017, the Council had the prerogative to devise some mechanism to collect cess.”
This statement establishes a legal limit on the existing Act, not the creation of a replacement levy. Any continuation after the sunset would need a separate legal and policy decision.
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The repayment forecast was not a completion certificate
An official presentation considered at the 54th Council meeting on September 9, 2024 estimated that the back-to-back loan would be fully repaid in the later part of financial year 2025–26. That was a forecast made at the time. It does not prove that repayment occurred on a particular date, or that interest and every other account obligation had been settled.
The 55th Council’s final recorded arrangement
The 55th GST Council minute book and agenda item 7(f), dated December 21, 2024, continued the existing cess rates until March 31, 2026. The decision also applied a specific rule to any residual balance: after back-to-back loan obligations, including interest, were serviced, any remaining surplus in the cess account would be divided 50:50 between the Centre and the states under section 10(3).
The same meeting records that the Group of Ministers wanted more time to examine what should follow abolition. The issues included constitutional authority, legislation, operating arrangements and the effect on state revenues. The meeting therefore did not establish a permanent successor guarantee or a new nationwide cess.
How much money was involved
The GST Council Secretariat’s September 2024 status update reported net compensation-cess collections of ₹7,61,215 crore through July 2024. It also projected cumulative collections of ₹10,27,966 crore through March 2026.
The first figure is an actual collection total reported at that meeting. The second is a projection, not a final receipt. Neither figure by itself shows the amount still owed, the interest paid, the final loan balance or the size of any distributable surplus.
| Figure | What it represents | Qualification |
|---|---|---|
| 14% annually | Protected year-on-year growth applied to the 2015–16 base-year revenue | Compensation formula described by the Ministry of Finance |
| ₹1.10 lakh crore | Centre’s borrowing in 2020–21 passed to states as back-to-back loans | Part of the pandemic-era shortfall financing |
| ₹1.59 lakh crore | Centre’s borrowing in 2021–22 passed to states as back-to-back loans | Part of the pandemic-era shortfall financing |
| ₹16,982 crore | June 2022 compensation released from central resources | Announced February 18, 2023; intended to be recouped from future cess receipts |
| ₹7,61,215 crore | Net cess collected through July 2024 | Actual total reported in the 54th meeting agenda |
| ₹10,27,966 crore | Cess collection projected through March 2026 | Forecast reported in the September 2024 Council material |
What the end means for state governments
No automatic continuation of the 14% protection
Once the five-year period ended, states no longer had an automatic statutory claim to compensation calculated against the 14% growth path. A later Council decision could create another arrangement, but the existing guarantee did not roll over by itself.
Outstanding loans remain a separate issue
States received the pandemic-era borrowing as back-to-back loans. The later cess extension was designed to service those obligations. Ending the guarantee therefore did not mean that all related financial arrangements vanished on the same day; the debt account had to be brought to closure under the approved repayment plan.
Residual money is not the same as ordinary GST revenue
The 55th Council’s 50:50 rule applies to a surplus left in the compensation-cess account after the specified loans and interest are paid. It is not a promise that states will receive half of all future GST revenue, nor does it specify each state’s individual allocation formula.
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What the end means for the Centre
The Centre had to provide temporary resources when the compensation fund could not meet an admissible payment, as shown by the ₹16,982 crore June 2022 release. It also arranged the back-to-back borrowing and was responsible for the policy and legal decisions needed to close the cess account.
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Under the 55th Council decision, the Centre would receive half of any qualifying residual surplus after debt and interest obligations. That allocation is conditional on a surplus actually existing and on the account being reconciled; the official material cited here does not state the final amount.
What taxpayers should expect from the sunset date
The Council’s decision kept the existing cess rates in place through March 31, 2026. That date was therefore a planned endpoint for the current levy, not evidence that the charge ended immediately after June 2022.
After March 31, 2026, the 2017 Act alone could not authorize collection of the compensation cess. A continuing charge would require a new legal basis and a published government or Council decision. Without that documentation, it is unsafe to assume that the same rates continued, that a replacement cess was imposed, or that the charge disappeared on a particular day.
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What remains unresolved after March 31, 2026
The official records identified here do not establish four facts that are often treated as settled:
- whether the back-to-back loans and all associated interest were actually repaid, and on what date;
- whether a successor cess or another revenue mechanism was enacted;
- whether states received a new compensation guarantee after the original five-year period; and
- whether a residual surplus existed and, if so, how much was distributed under section 10(3).
The September 2024 projection of repayment in the later part of financial year 2025–26 and the projected ₹10,27,966 crore of collections through March 2026 cannot answer those questions. A final conclusion requires an official Council decision, statutory notification, Ministry statement or audited account issued after the sunset.
How to read future announcements
When a new announcement appears, check which of these separate questions it answers:
- Authority: Does it cite an amendment, notification or other legal power that permits collection after March 31, 2026?
- Purpose: Is the money for old loan principal and interest, a new compensation promise, or a different government programme?
- Accounting: Does it report actual receipts and outstanding liabilities, rather than a forecast?
- Distribution: Does it explain whether section 10(3)’s equal split applies and how any state share is calculated?
- Dates: Does it specify the effective date, repayment date and period covered?
These checks prevent the common mistake of treating a projected collection figure, an extension of the levy or a statement about the old guarantee as proof of a new permanent system.
Bottom line for states, the Centre and taxpayers
The GST compensation guarantee ended in June 2022 after its promised five-year term. Compensation cess collection continued because the account still had to fund the final shortfall and repay pandemic-era back-to-back loans. The last recorded Council arrangement kept existing rates until March 31, 2026 and earmarked any genuine post-repayment surplus for an equal Centre-state split. The post-March-2026 policy and the actual closing balance are not established by the official records cited here, so claims about a successor cess, a new guarantee or a final payout require newer primary documents.
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