Kerala Finance Bill moots waiver schemes for Flood Cess & pre-GST tax dues, not applicable to liquor-sale arrears

The Kerala Finance Bill, 2026, set to be introduced in the legislative assembly, has notified the Small Arrear Waiver Scheme and Flood Cess Arrears Settlement Scheme.

The schemes are meant to settle a substantial number of arrears which remain outstanding under various tax laws that existed before the introduction of the GST. The bill notes that many of these arrears are long pending and involve relatively small amounts. 

As part of the scheme, all arrears involving tax amounts above ₹50,000 but not exceeding ₹2lakh shall be fully waived along with related interest and penalty.

The pre-GST tax laws for which the waiver scheme will apply include the Kerala Surcharge on Taxes Act, 1957 (11 of 1957), the Kerala General Sales Tax Act, 1963 (15 of 1963), the Kerala Tax on Luxuries Act, 1976 (32 of 1976), the Kerala Agricultural Income Tax Act, 1991(15 of 1991), the Kerala Value Added Tax Act, 2003 (30 of 2004) and the Central Sales Tax Act, 1956 (Central Act 74 of 1956). 

However, this benefit shall not apply to arrears relating to the sale of liquor under the Kerala General Sales Tax Act, 1963. This benefit shall be applicable only for the arrears of tax involved in the specified orders issued on or  before 31st March, 2027, according to the bill. 

It also puts a bar on revenue recovery proceedings. Waiver of arrears will apply to cases in which revenue recovery proceedings have been initiated.

The revenue recovery proceedings against such beneficiaries shall be deemed to have been withdrawn on the date of commencement of the Kerala Finance Act, which shall be binding on the revenue authorities and such beneficiaries will not have to pay any collection charge leviable by the revenue authorities.

The Flood Cess Arrears Settlement Scheme, 2026 is proposed to settle substantial arrears. A one per cent Flood Cess was levied on GST applicable in Business-to-Customer (B2C) supplies during the period from August 1, 2019 to July 31,2021. According to the government, although the levy period of Flood Cess has ended, substantial arrears are still outstanding. 

The amnesty schemes introduced earlier were of short duration. The taxpayers covered by the scheme will be granted a complete waiver of interest and penalty associated with Flood Cess arrears, provided they remit the entire outstanding principal amount of Flood Cess. The last date for settlement of arrears under the scheme is March 31, 2027.