GST Cess - Rate, Applicability and Calculation

GST cess is a compensation cess levied under section 8 of The Goods and Services Tax (Compensation to State) Act, 2017. Cess in GST is levied on intra-state supply of goods or services and inter-state supply of goods or services to provide compensation to the States for loss of revenue due to implementation of GST in India. In this article, we look at the applicability of GST Cess, GST cess rate and methodology for calculation.

What is Cess in GST?

Cess full form in GST is generally referred to as Central Excise and Service Tax. After the introduction of GST in July 2017, it was replaced with "compensation cess", which is used to compensate states for the revenue losses during the GST implementation. This compensation cess is applicable on certain goods, especially luxury items and goods like tobacco and alcohol, to ensure that the states do not face financial hardship due to the GST implementation. The funds collected through this cess are allocated to the states that suffered a revenue shortfall due to the new tax system.

Why is GST Cess Levied?

As GST is a consumption-based tax, the state in which the consumption of goods and supply happen would be eligible for the indirect tax revenue. Hence, after GST coming into effect, some states that are net exporter of goods and/or services are expected to experience a decrease in indirect tax revenue. To compensate the States for the loss in tax revenue, the GST Compensation Cess has been declared by the Central Government. As per the Goods and Services Tax (Compensation to State) Act, 2017, GST compensation cess would be levied for a period of 5 years from GST implementation.

Usage of Cess in GST

All the proceeds received from the GST compensation cess would be credited to a non-lapsable fund known as the Goods and Services Tax Compensation Fund. The funds would then be used for compensating tax revenue loss to States on account of GST implementation. If any funds are unutilised, then at the end of the transition period, it would be shared in half by the Central Government and all State Government. State government's share would be distributed in the ratio of their total revenues from the State tax or the Union territory goods and services tax, in the last year of the transition period.

GST Compensation Cess Applicability

GST Cess would be applicable to both the supply of goods or services that have been notified by the Central Government. Also, both intra-state supplies of goods or services and inter-state supplies of goods or services would attract Cess in GST. All taxable person under GST, except taxpayers registered under GST composition scheme is expected to collect and remit GST cess. The following goods will attract GST Cess:

Pan Masala
Tobacco and manufactured tobacco substitutes, including tobacco products
Coal, briquettes, ovoids and similar solid fuels manufactured from coal, lignite, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated
Aerated waters
Motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles for the transport of ten or more persons, including the driver), including station wagons and racing cars.
Any other supplies as notified from time to time.

How to Calculate Cess on GST?

In case the goods or service attracts GST cess, cess must be calculated based on the taxable value of the supply and as provided in the GST cess rate schedule. In case GST cess is applicable on goods imported into India, then cess must be levied and collected along with the IGST and customs duty. For example, if the assessable value of goods imported into India is Rs. 100/-, the GST rate is 18%, and customs duty is 10%. Then IGST tax payable would be calculated as: Assessable Value= Rs. 100/- Basic Customs Duty (BCD) = Rs. 10/- Value for the purpose of levying IGST = Rs. 110/- GST - Integrated Tax = 18% of Rs.110/- = Rs. 19.80 Total Taxes = Rs. 29.80 If the goods attract GST Compensation Cess, then Cess in GST would be levied on Rs. 110/-, as Compensation Cess is not levied IGST.

Goods Import Procedure under GST

GST Cess Rate List

Below, we have provided a GST Cess rate list for a wide variety of goods,

Name of Goods or Service	HSN Code	GST Cess
Pan Masala	2106 90 20	60%
GST Cess rate on Aerated waters, containing added sugar or other sweetening matter or flavoured
Aerated waters	2202 10 10	12%
Lemonade	2202 10 20	12%
Others	2202 10 90	12%
GST Cess rate on Tobacco and Tobacco Products
Unmanufactured tobacco bearing a brand name	2401	65%
Tobacco refuse, bearing a brand name	2401 30 00	61%
Chewing tobacco (without lime tube)	2403 99 10	160%
Chewing tobacco (with lime tube)	2403 99 10	142%
Filter khaini	2403 99 10	160%
Jarda scented tobacco	2403 99 30	160%
Pan masala containing tobacco 'Gutkha'	2403 99 90	204%
GST Cess rate on Cigarettes
Non-filter
Not exceeding 65 mm	2402 20 10	5% + Rs.1591 per thousand
Exceeding 65 mm but not 70 mm	2402 20 20	5% + Rs.2876 per thousand
Filter
Not exceeding 65 mm	2402 20 30	5% + Rs.1591 per thousand
Exceeding 65 mm but not 70 mm	2402 20 40	5% + Rs.2126 per thousand
Exceeding 70 mm but not 75 mm	2402 20 50	5% + Rs.2876 per thousand
Others	2402 20 90	5% + Rs.4170 per thousand
GST Cess rate Other Tobacco Products
Cigar and cheroots	2402 10 10	21% or Rs. 4170 per thousand, whichever is higher
Cigarillos	2402 10 20	21% or Rs. 4170 per thousand, whichever is higher
Cigarettes of tobacco substitutes	2402 90 10	Rs.4006 per thousand
Cigarillos of tobacco substitutes	2402 90 20	12.5% or Rs. 4,006 per thousand whichever is higher
Other	2402 90 90	12.5% or Rs. 4,006 per thousand whichever is higher
Hookah' or 'gudaku' tobacco bearing a brand name	2403 11 00	72%
Tobacco used for smoking 'hookah' or 'chilam' commonly known as 'hookah' tobacco or 'gudaku'	2403 11 00	17%
Other smoking tobacco not bearing a brand name.	2403 11 90	11%
Smoking mixtures for pipes and cigarettes	2403 19 10	290%
Other smoking tobacco bearing a brand name	2403 19 90	49%
Other smoking tobacco not bearing a brand name	2403 19 90	57%
"Homogenised" or "reconstituted" tobacco bearing a brand name	2403 91 00	72%
Preparations containing chewing tobacco	2403 99 20	72%
Snuff	2403 99 40	72%
Preparations containing snuff	2403 99 50	72%
Tobacco extracts and essence bearing a brand name	2403 99 60	72%
Tobacco extracts and essence not bearing a brand name	2403 99 60	65%
Cut tobacco	2403 99 70	20%
All goods, other than pan masala containing tobacco 'gutkha', bearing a brand name	2403 99 90	96%
All goods, other than pan masala containing tobacco 'gutkha', not bearing a brand name	2403 99 90	89%
Cess rate in GST for Other Products
Coal; briquettes, ovoids and similar solid fuels manufactured from coal.	2701	Rs.400 per tonne
Lignite, whether or not agglomerated, excluding jet	2702	Rs.400 per tonne
Peat (including agglomerated)	2703	Rs.400 per tonne
GST Cess Rate on Cars & Motor Vehicles
Motor vehicles (10<persons <13)	8702	15%
Small Cars (length < 4 m ; Petrol<1200 cc )	8703	1%
Small Cars (length < 4 m ; Diesel < 1500 cc)	8703	3%
Mid Segment Cars (engine < 1500 cc)	8703	15%
Large Cars (engine > 1500 cc)	8703	15%
Sports Utility Vehicles (length > 4m ; engine > 1500 cc; ground clearance > 170 mm)	8703	15%
Mid Segment Hybrid Cars (engine < 1500 cc)	8703	15%
Hybrid motor vehicles > 1500 cc	8703	15%
Hydrogen vehicles based on fuel cell tech > 4m	8703	15%
Motorcycles (engine > 350 cc)	8711	3%
Aircraft for personal use.	8802	3%
Yacht and other vessels for pleasure or sports	8903	3%

Input Tax Credit (ITC) and GST Compensation Cess

Input Tax Credit (ITC) is a mechanism in the Goods and Services Tax (GST) system that allows businesses to claim credit for the GST paid on their purchases. However, when it comes to Compensation Cess, a special tax levied on certain goods and services, the utilization of ITC is restricted. The ITC claimed on Compensation Cess can only be used to offset the Compensation Cess liability on the business's own output. This means it cannot be used to reduce other GST liabilities, ensuring that the benefit of ITC on Compensation Cess is specifically directed towards the purpose for which the cess was imposed.

How is the GST Compensation Cess distributed among the states?

The GST Compensation Cess will be distributed among the states to compensate for any revenue loss incurred during the implementation of GST. It is determined by the method formulated by the GST Council. It involves the actual revenue, projected revenue, and the compensable payment as a result of the calculation. The compensable amount will be paid at every month to the respective states. If anything remains, it will be distributed to the central and states using a certain formula. To register a Private Limited Company and Public Limited Company, click here.