Summary of GST Compensation Rate Notification issued post 56th Council Meeting

Following the 56th GST Council Meeting, the Central Government issued Notification No. 02/2025-Compensation Cess (Rate) dated 17 September 2025, amending the compensation cess schedule under Section 8(2) of the GST (Compensation to States) Act, 2017. This notification, effective 22 September 2025, modifies the principal Notification No. 1/2017- Compensation Cess (Rate) dated 28.06.2017. The amendment substitutes the entry “Nil” against specified serial numbers in the compensation cess schedule, notably covering S. Nos. 2, 3, 4, 4A, 4B, 39–42, and 47–55, along with related entries. The effect of this change is to withdraw compensation cess on the specified goods, thereby reducing the tax burden on affected categories. The move aligns with the Council’s recommendation to rationalize rates and ease compliance. While earlier notifications imposed cess on certain goods to support states’ revenue shortfall during the transition to GST, this amendment reflects the Centre’s ongoing efforts to recalibrate cess in light of evolving revenue patterns and the tapering of compensation requirements. The notification is part of the broader policy framework where the GST Council continuously reviews the compensation cess mechanism to balance state revenue needs with market rationalization. Businesses dealing in goods covered by these entries must carefully assess the impact from 22 September 2025, ensuring compliance with updated cess obligations. This change also signals a gradual movement towards reduced reliance on compensation cess collections as GST revenues stabilize across states.

GST Compensation Cess Notification 02/2025: Key Amendments at a Glance