Compensation Cess
Levied under GST (Compensation to States) Act, 2017 to compensate states for revenue loss during first 5 years of GST. Extended beyond 2022 for loan repayment.
Cess Rates (July 2017 — September 2025)
Active on all notified goods
| Category | HSN | Cess Rate | Base GST | Total |
|---|---|---|---|---|
| Coal, Lignite & Peat | 2701-2703 | Rs.400 per tonne | 5% | 5% + Cess |
| Pan Masala | 2106 90 20 | 60% | 28% | 28% + Cess |
| Gutkha & Chewing Tobacco (with lime tube) | 2403 99 10 | Rs.4,170 per 1000 sticks or 204% ad valorem | 28% | 28% + Cess |
| Unmanufactured Tobacco (with/without lime tube) | 2401 | 71% | 28% | 28% + Cess |
| Chewing Tobacco (without lime tube) | 2403 99 10 | 142% | 28% | 28% + Cess |
| Filter Khaini | 2403 99 10 | Rs.69 per unit | 28% | 28% + Cess |
| Zarda Scented Tobacco | 2403 99 30 | 160% | 28% | 28% + Cess |
| Tobacco Extracts & Essences | 2403 91 00 | 290% | 28% | 28% + Cess |
| Snuff | 2403 99 40 | 89% | 28% | 28% + Cess |
| Cigarettes ≤65mm | 2402 20 10 | 5% + Rs.2,076 per 1000 | 28% | 28% + Cess |
| Cigarettes 65-70mm | 2402 20 20 | 5% + Rs.2,747 per 1000 | 28% | 28% + Cess |
| Cigarettes 70-75mm | 2402 20 30 | 5% + Rs.2,747 per 1000 | 28% | 28% + Cess |
| Cigarettes >75mm (non-filter) | 2402 20 40 | 5% + Rs.4,170 per 1000 | 28% | 28% + Cess |
| Cigarettes >75mm (filter) | 2402 20 50 | 36% + Rs.4,170 per 1000 | 28% | 28% + Cess |
| Cigarettes >85mm | 2402 20 90 | 36% + Rs.4,170 per 1000 | 28% | 28% + Cess |
| Cigars & Cheroots | 2402 10 | 21% or Rs.4,170 per 1000 | 28% | 28% + Cess |
| Aerated/Carbonated Beverages | 2202 10 | 12% | 28% | 28% + Cess |
| Caffeinated Beverages | 2202 99 | 12% | 28% | 28% + Cess |
| Motor vehicles — petrol ≤1200cc, ≤4m | 8703 | 1% | 28% | 28% + Cess |
| Motor vehicles — diesel ≤1500cc, ≤4m | 8703 | 3% | 28% | 28% + Cess |
| Motor vehicles — mid-size (1200-1500cc) | 8703 | 15% | 28% | 28% + Cess |
| Motor vehicles — large/luxury (>1500cc) | 8703 | 20% | 28% | 28% + Cess |
| SUVs (>1500cc, >4m, ground clearance >170mm) | 8703 | 22% | 28% | 28% + Cess |
| Hybrid vehicles | 8703 | 15% | 28% | 28% + Cess |
Post GST 2.0 Changes (From 22 Sep 2025)
Discontinued for most goods — only tobacco continues
Coal/lignite/peat — cess removed, absorbed into base GST
Motor vehicles — cess merged into 40% consolidated rate under Schedule III
Aerated beverages — cess merged into 40% rate under Schedule III
Pan masala — cess merged into 40% rate under Schedule III
Tobacco products — CESS CONTINUES at existing rates over 28% GST (Schedule VII)
Revenue impact: Cess collections fell from Rs.11,652 crore (Sep 2025) to Rs.7,812 crore (Oct 2025) — 33% decline
Purpose
To compensate states for revenue loss in the first 5 years of GST (2017-2022), extended to repay Rs.2.69 lakh crore in back-to-back loans taken during COVID-19
Legal Basis
GST (Compensation to States) Act, 2017 — Section 8 (levy) and Section 10 (duration)