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Since its introduction in 2017, the Goods and Services Tax (GST) has significantly reshaped India's tax landscape. This consumption-based tax system marked a departure from the conventional indirect tax structure. However, the transition posed various challenges. One of these challenges was that Indian exporting states witnessed a decline in indirect tax revenue. To address this, the Central Government introduced the GST compensation cess, a mechanism designed to alleviate the financial strain on states grappling with revenue losses post-GST implementation. This blog particularly focuses on explaining the intricacies of the GST compensation cess and also covers the importance of SRN and how to use it for tracking GST application status.
GST cess is a compensation cess that is levied under section 8 of the Goods and Services Tax (GST) Act. GST cess is levied on the inter-state and intra-state supply of goods and services to compensate the states for the revenue loss occurring due to the GST implementation in India.
Once you submit your application for GST registration on the GST portal, you will receive an SRN (Service Request Number). This number can be used to track your GST registration application status. This request number is generated when applying for GST registration at the time of incorporating a company. This application can be made through a SPICE AGILE (INC-35) form.
GST, being a consumption-based tax, the state in which the consumption of services and goods takes place gets the indirect tax revenue. Therefore, after the introduction of GST, the states exporting more goods and services experienced a decrease in indirect tax revenue.
The Central Government introduced GST compensation cess to compensate such states for the loss in revenue. GST compensation cess is levied for a period of 5 years after GST implementation.
Compensation cess is collected by all taxpayers involved in supplying specific goods or services, excluding composition taxpayers and exporters. This requirement extends to compensation cess applicable to certain goods imported into India. If a compensation cess is paid on exports, exporters have the option to seek a refund for the amount paid.
All the receipts from the GST compensation cess are credited to a non-lapsable fund, also known as the GST compensation fund. This fund is then used to compensate those states that have suffered revenue loss due to GST implementation. At the end of the transition period, unutilized funds, if any, are shared in half by the state and central governments. The state government's share is shared in the ratio of total revenues.
Compensation cess is levied and calculated above the amount of GST that has been charged on the supply of particular goods and services.
Let’s understand this with the help of an example -
Suppose the compensation cess on copper is Rs.500 per tonne. On the sale of a tonne of copper having a value of Rs.5000, the GST cess that has to be paid is Rs.500. In addition to this, GST @5% is calculated on the value of copper sold, which will be Rs.250. Therefore, the total liability for GST on copper will be Rs.750 (500+250).
You can check the status of your GST registration application using the SRN number generated at the time of applying for registration.
Given below are the steps to check the GST registration status using the SRN number -
The purpose of GST Cess, its calculation, and the role of SRN in monitoring registration progress are essential insights for businesses trying to gain an understanding of GST. As we continue to adapt to the evolving tax landscape, a comprehensive understanding of these concepts becomes indispensable for informed decision-making and compliance. However, GST can be very intimidating for normal people without any tax background. Therefore, it is advisable to seek professional help in GST-related matters.
The government collects GST compensation cess to compensate those states that mostly export their goods and services for the loss of revenue occurring due to the implementation of GST.
The compensation cess payable under GST during a financial year is calculated on the basis of 2016, which has been taken as the base year for GST compensation cess calculation.
