gst: Many states request GST compensation extension past 5 years: FM Nirmala Sitharaman

Many states have requested extension of the compensation mechanism below the GST past June 2022, Finance Minister Nirmala Sitharaman stated on Monday. Below the Items and Companies Tax (GST) legislation, states have been assured to be compensated bi-monthly for any lack of income within the first 5 years of GST implementation from July 1, 2017.

The shortfall is calculated assuming a 14 per cent annual development in GST collections by states over the bottom 12 months of 2015-16. The 5-year interval ends in June 2022.

The compensation quantity to be paid from the compensation fund is arrived at by levying cess on prime of the best tax slab on luxurious, demerit and sin items.

In a written reply within the Lok Sabha, Sitharaman stated the central authorities is dedicated to giving GST compensation to states/UTs for five years as per the Constitutional provision.

To a question whether or not the federal government has obtained proposals from state governments requesting extension of compensation mechanism for an additional 5 years in view of difficulties brought on by the pandemic, she stated “Sure Sir. Many states have requested for extension of the compensation interval through the deliberations in GST Council and in letters addressed to the central authorities”.

GST compensation for monetary years 2017-18, 2018-19 and 2019-20 has already been paid to states.

Since collections within the compensation fund are falling wanting requirement, for 2020-21 and 2021-22, the Centre has borrowed funds price Rs 1.10 lakh crore and Rs 1.59 lakh crore, respectively and handed it on to states as back-to-back loans.

The compensation cess, levied on luxurious and demerit items, will proceed to be collected until March 2026 to repay the borrowings that have been achieved in 2020-21 and 2021-22 to compensate states for GST income loss.
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