Archive · 24 Jul 2026
SBI Research: States Gain ₹1.43 Lakh Crore Despite GST Cess End
The GST compensation cess, which was a temporary tax on certain goods to help states adjust to the new GST system, has ended.
Some people worry that states will lose money because of this.
However, SBI Research says that states will actually gain about ₹1.43 lakh crore in the next fiscal year.
This is because the new tax system includes higher GST collections and a different way of sharing the money between the central government and the states.
The report also says that the GST revenue is expected to grow again after a slowdown last year.
So, even though the compensation cess is gone, states are still doing well financially.
The GST compensation cess, a temporary tax on demerit goods, expired on February 1, 2026.
Critics argue states will lose ₹15,000-20,000 crore annually due to the cess's withdrawal.
SBI Research estimates states will gain ₹1.43 lakh crore in FY27 from higher GST collections and revised revenue-sharing.
The new Additional Excise Duty (AED) is shared with states according to the Finance Commission's formula.
GST revenue growth is expected to rebound to 8-9% annually after a moderation in FY26.
- Who
- Indian states and the central government.
- What
- The discontinuation of the GST compensation cess and its impact on states' revenue.
- When
- The cess officially expired on February 1, 2026.
- Where
- India.
- Why
- To compensate states for revenue loss from the rollout of GST, which was a temporary measure.
Critics of GST Cess Withdrawal
SBI Research Perspective
Revenue Impact
Critics of GST Cess Withdrawal
States will lose ₹15,000-20,000 crore annually due to the withdrawal of the GST compensation cess.
SBI Research Perspective
States will gain ₹1.43 lakh crore in FY27 due to higher GST collections and revised revenue-sharing mechanisms.
Tax Sharing Mechanism
Critics of GST Cess Withdrawal
The Additional Excise Duty (AED) is shared according to the Finance Commission formula, reducing states' revenue.
SBI Research Perspective
The inclusion of AED in the divisible pool benefits states from a larger overall tax pool.
- GST Compensation Cess
- A temporary levy on demerit goods to compensate states for revenue loss from GST rollout.
- Additional Excise Duty (AED)
- A tax on specified products, shared with states according to the Finance Commission's devolution formula.
- GST Revenue Growth
- Expected to rebound to 8-9% annually after a moderation in FY26.
- States' Share in FY27
- ₹19.1 lakh crore from GST and Basic Excise Duty.
- GST Rate on Demerit Goods
- Increased from 28% to 40%.