Centre Cleared GST Compensation Dues To States Till May’22

The Centre has released Rs 86,912 crore to states to clear the Goods and Services Tax (GST) compensation dues until 31st May 2022. 

The finance ministry said that this decision was taken to assist the states in managing their resources and carrying out their programmes during the financial year, especially the expenditure on capital. 

The Centre has made the full payment despite having only 25,000 crore (approx) in the GST compensation fund. The balance cess has been paid from the Centre’s resources pending collection of cess.

The breakup of Rs 86,912 crore is as follows:

• Rs 47,617 crore was due til January’22
• Rs 21,322 crore was due for February-March’22
• Rs 17,973 crore was due for April-May’22.

At the GST introduction, the Centre agreed to pay compensation at 14% revenue growth with FY 2016-17 as the base year. The compensation cess is paid for the revenue loss due to GST implementation for five years. GST cess is being levied on specified goods, and the collected cess is being credited to the compensation fund.

The Centre paid compensation cess regularly during FY 2017-18 and 2018-19. However, later on, the cess collection did not increase in the proportion of the estimated state’s projected revenue at 14% compounded growth. In addition, COVID-19 increased the gap between projected revenue and the actual revenue receipt.

The Centre has borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 and released them as back-to-back loans to states to meet the shortfall in cess collection.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@clear.in