In September 2025 the GST Council cut rates on hundreds of items, and companies now expect the next round to reach their product. States carry the cost of every cut. For GST's first five years, a compensation cess on demerit goods funded a guarantee of fourteen percent annual revenue growth to every State; the guarantee lapsed in 2022, and the cess, retained to repay pandemic borrowing, ended on 31 March 2026. The September cuts landed with no cushion behind them. What insures a State's revenue now, and why does that answer set the timetable for the next round?
The 2017 settlement was an exchange. States surrendered their sales taxes, entry taxes, and a clutch of local levies; in return the Centre guaranteed each State revenue growth of fourteen percent a year over the 2015-16 base for five years, funded by a compensation cess levied on demerit goods. The guarantee lapsed in June 2022. The cess survived it by four years, but its purpose changed: from July 2022 every rupee it raised serviced the approximately 2.7 lakh crore rupees the Centre had borrowed to pay compensation through the pandemic. For those four years the cess existed for the lender, not the States. On 31 March 2026 it ended altogether, with tobacco shifted from February 2026 to retail-price valuation and a separate excise and health levy structure.
The September 2025 rationalisation, four slabs collapsed into a 5 and 18 percent structure with a 40 percent demerit rate, was therefore the first consequential revenue decision the States have absorbed with no compensation architecture behind them. The consumption argument may prove right over time; a State finance secretary still has to close this year's budget. Every reform proposal now arriving at the Council, the next round of cuts, the inclusion of new sectors, is heard from that seat, and the hearing is fiscal before it is technical.
The instrument chosen to replace the cess decides who gets insured. A Union cess sits outside the divisible pool; a new health or energy cess at the Centre replaces the revenue without sharing it. A higher demerit ceiling inside GST, and the Group of Ministers has examined raising the permissible rate to 60 percent so the former cess incidence can live inside the rate, keeps the proceeds within the shared structure. A Union cess insures the Centre; a rate inside GST insures the structure both sides share; the design of the replacement, not its size, is the contest running beneath every proposal.
The venue has also moved. The Sixteenth Finance Commission submitted its report in November 2025 for the 2026 to 2031 award; it was tabled in Parliament on 1 February 2026. It held the States' share of central taxes at 41 percent against their demand for half, placed no cap on the non-shareable cesses and surcharges that now account for nearly a fifth of the Centre's gross tax revenue, and discontinued revenue deficit grants. Read together, the award offered the States no new cushion. What insures a State's revenue after March 2026 is being settled less in the GST Council than in the Finance Commission arithmetic, and the Sixteenth's award left the question open.
For a company waiting on the next leg of GST reform, the operative reading is that the Council calendar is the wrong watch-face. A pending rate proposal moves when a State finance department can take the arithmetic to its own legislature, and the proposal that arrives carrying a revenue design moves ahead of the proposal that arrives carrying only a case. The cut a company is waiting for is downstream of an insurance design nobody has yet agreed; until that design exists, every revenue-negative ask at the Council is, in effect, parked.