₹7.35 Lakh Crore Compensation Paid To States Since GST Regime Commenced, Only 4 Months Due Pertaining To FY 21-22 Pending : FinMin

The Union Finance Ministry on Wednesday (Apr 27) said the Centre has already released eight months of GST compensation dues to the states for the fiscal ended March 2022 and Rs 78,704 crore is pending due to inadequate balance in the cess fund.

At the time of introduction of GST, the Constitution amendment provided that the Parliament, by law shall provide compensation to States for a period of five years for loss of revenue due to introduction of GST.

At the time of GST implementation on July 1, 2017, the Centre had agreed to compensate states for five years till June 2022, and protect their revenue at 14 per cent per annum over the base year revenue of 2015-16.

Accordingly, the GST Compensation to States Act was legislated which provides for release of compensation against 14% year-on-year growth over revenues in 2015-16 from taxes subsumed in GST. This compensation cess is credited to the compensation fund and as per the Act, all compensation is paid out of the fund. Presently, cess is levied on items like pan masala, tobacco, coal and cars.

The Finance Ministry said that compensation of about ₹ 49,000 crore has been released for 2017-18 from the fund, which increased to ₹ 83,000 crore for 2018-19 and further to ₹ 1.65 lakh crore in 2019-20. For these three years, almost ₹ 3 lakh crore compensation was released to States.

"However, the compensation requirement increased substantially during 2020-21 due to impact of covid on revenues. To ensure that States have adequate and timely resources to combat covid and related issues, Centre borrowed ₹ 1.1 lakh crore in 2020-21 and ₹ 1.59 lakh crore in 2021-22 and passed it on to States on a back-to-back basis. During 2021-22, Centre ensured that release of this amount of ₹ 1.59 lakh crore was front loaded to ensure that States have adequate resources in the earlier part of the year." the ministry said.

"Currently, only for the year 2021-22, compensation of Rs 78,704 crore is pending due to inadequate balance in the fund, which is equivalent to compensation of four months,” the ministry added.

For 2020-21 fiscal no compensation is pending to the states and a total of Rs 2.78 lakh crore, which includes back to back loan, has been released to states.

To ensure that states have adequate and timely resources to combat Covid and related issues, the Centre borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 and passed it on to States on a back-to-back basis, the Ministry added.

(With PTI inputs )