The government has extended the Goods and Services Tax (GST) compensation tax until March 2026. On June 25, the Finance Ministry confirmed the extension through a gazette announcement.

GST compensation tax on certain goods and services has been extended until March 2026 to cover borrowing and delinquent compensation paid to states over the past two years.

To reach out to states ahead of the rollout of a national GST that covers most state taxes, the centre has ensured that the fund’s reimbursement expenses will fund GST payments for the five years to June 30, 2022. A 14% annual increase in tax revenue can make up for any shortfalls.

The tax deferral will now help repay special borrowings over the past two financial years. From July 1 this year, states will no longer receive so-called GST compensation. Some states have asked for an extension, but the centre disagrees. The GST council will meet in Chandigarh next week.