Centre to release another ₹34,000 cr. GST compensation to States soon

States were guaranteed payment for any loss of revenue in the first five years of the GST implementation, which came into force on July 1, 2017.

The Finance ministry cleared about ₹34,000 crore pending GST compensation for October and November in two tranches.

In a bid to provide further relief to States amid the coronavirus outbreak, the Finance ministry is planning to release another ₹34,000 crore to States as compensation for their revenue loss in the goods and services tax (GST) regime.

States, so far, have been paid pending dues till November and the remaining will be cleared in phases, sources said.

The Finance ministry cleared about ₹34,000 crore pending GST compensation for October and November in two tranches.

The first tranche of ₹19,950 crore was released on February 17, while the remaining amount of ₹14,103 crore was distributed to States and Union Territories on April 7, sources added.

In all, ₹34,053 crore was released at a time when States were facing liquidity crunch due to the nationwide lockdown imposed to contain spread of coronavirus .

According to sources, the government has released close to ₹1.35 lakh crore to States and Union Territories towards GST compensation cess.

Under GST law, States were guaranteed payment for any loss of revenue in the first five years of the GST implementation, which came into force on July 1, 2017.

Shortfall calculation

The shortfall is calculated assuming a 14% annual growth in GST collections by States over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28% slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate States for any revenue loss.

The Centre has, so far, released about ₹2.45 lakh crore as GST compensation to States since the implementation of GST on July 1, 2017.

During July 2017-March 2018, ₹48,785 crore was released, while between April 2018-March 2019, ₹81,141 crore was paid to States. For April-May and June-July last year, ₹17,789 crore and ₹27,956 crore were released. Further, ₹35,298 crore was paid to States as compensation for August-September and ₹34,053 crore for October-November 2019.

Collections slip below psychological ₹1-lakh crore mark

GST collections in March slipped below the psychological ₹1-lakh crore mark for the first time in four months to ₹97,597 crore as the COVID-19 lockdown that shut most businesses compounded tax collections in an already sluggish economy.

GST mop-up in March recorded a 8.4% decline over March 2019 collection of ₹1.06 lakh crore. The collections were lower on account of dip in revenues from domestic transactions as well as imports.

In the last four months — November 2019-February 2020 — GST collection surpassed the ₹1-lakh crore mark. In February, mop-up was ₹1.05 lakh crore, January (₹1.10 lakh crore), December (₹1.03 lakh crore) and November (₹1.03 lakh crore).