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Centre clears entire GST compensation payable to States till to date


NEW DELHI, MAY 31, 2022

The Centre has cleared the entire amount of Goods and Service Tax (GST) compensation payable to States up to May 31, 2022 by releasing an amount of Rs 86,912 crore, an official statement said on Tuesday.

The payment was made to assist the states in managing their resources and ensuring that their programmes, especially the expenditure on capital, are carried out successfully during the financial year, it said.

“This decision has been taken despite the fact that only about Rs 25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of Cess,” the statement added.

The GST system was introduced in the country with effect from July 1, 2017 and States were assured compensation for loss of any revenue arising on account of implementation of GST as per the provisions of the GST (Compensation to States) Act, 2017 for a period of five years.

For providing compensation to States, cess is being levied on certain goods and the amount of cess collected is being credited to Compensation Fund. Compensation to States is being paid out of the Compensation Fund w.e.f. July 1, 2017.

Bi-monthly GST compensation to States for the period 2017-18, 2018-19 was released on time out of the Compensation Fund. As the States’ protected revenue has been growing at 14% compounded growth whereas the Cess collection did not increase in the same proportion, COVID-19 further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection, the official statement read.

In order to meet the resource gap of the States due to short release of compensation, Centre has borrowed and released Rs.1.1 lakh crore in 2020-21 and Rs.1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection. All the States have agreed to the above decision. In addition, Centre has also been releasing regular GST compensation from the Fund to meet the shortfall.

With the concerted efforts by Centre and States, gross monthly GST collection including cess has been showing a remarkable progress.

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