Lok Sabha Question No. 206 (UNSTARRED), answered on 2020-09-14
Subject: Release of GST Compensation
Ministry: FINANCE
Asked by: Dr. T. Sumathy (a) Thamizhachi Thangapandian

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

LOK SABHA UNSTARRED QUESTION NO. 206 TO BE ANSWERED ON MONDAY, THE 14TH SEPTEMBER, 2020 BHADRAPADA 23, 1942 (SAKA)

## Release of GST Compensation

## 206: Dr. T.Sumathy (a) Thamizhachi Thangapandian:

Will the Minister of FINANCE be pleased to state:

- (a)  whether the Government has released Goods and Service Tax (GST) compensation dues for the months between November 2019 to February 2020 to the various States, Tamil Nadu in particular since the announcement of the lockdown on 24 March 2020;
- (b)  if so, the details thereof, State-wise;
- (c)  whether the Government  is not in a position to provide GST pending dues since March 2020 to till date;
- (d)  if so, the details thereof and the GST dues to various States;
- (e)  the action taken by the Government in this regard?

## ANSWER

MINISTER OF STATE IN MINISTRY OF FINANCE (Shri Anurag Singh Thakur)

(a) to (b): As per provisions in Section 7 of the GST (Compensation to States) Act, 2017 loss of revenue to the States shall be calculated and compensation for loss of revenue to the State shall be provisionally  calculated  and  released  at  the end  of  every  two  months'  period, for  5  years. Accordingly, admissible GST compensation for the period April, 2019 to March, 2020 has been released to all States/ UTs including Tamil Nadu as per details in Annexure.

(c) to (e): GST compensation cess collected in current FY 2020-21 is not sufficient to release the admissible GST compensation for period April-July, 2020. The pending GST compensation to States for period April to July, 2020 has been provisionally calculated as Annexure. Accordingly, issue of pending GST compensation and future course of action to meet the GST compensation shortfall has been discussed in 41st GST Council meeting on 27.08.2020 wherein States were given  two  options  to  meet  their  GST  compensation  shortfall  for  current  FY  from  market borrowing viz

## Option 1

- I. The  shortfall arising  out  of  GST  implementation (calculated  at  Rs.  97,000  crores approximately) will be borrowed by States through issue of debt under a Special Window coordinated by the Ministry of Finance.
- II. It will be the endeavour to ensure steady flow of resources similar to the flow under GST compensation on a bi-monthly basis.
- III. The GOI will endeavour to keep the cost at or close to the G-sec yield, and in the event of the  cost  being  higher,  will  bear  the  margin  between  G-secs  and  average  of  State Development Loan yields up to 0.5% (50 basis points) through a subsidy.
- IV. A special borrowing permission will be given by the GOI under Article 293 for this amount, over  and  above  any  other  borrowing  ceilings  eligible  under  any  other  normal  or special permission notified by Department of Expenditure .
- V. In respect of Union Territories (including National Capital Territory), suitable arrangements to  ensure  flow  of  resources  under  the  Special  Window  to  them  would  be  made  by  the Government of India
- VI. The interest on the borrowing under the Special Window will be paid from the Cess as and when it arises until the end of the transition period. After the transition period, principal and interest  will  also  be  paid  from  proceeds  of  the  Cess,  by  extending the  Cess  beyond the transition period for such period as may be required. The State will not be required to service the debt or to repay it from any other source.
- VII. States  will  also  be  given  permission  to  borrow  the  final  instalment  of  0.5%  (originally intended as a bonus for completing at least three of the four specified reforms) allowed in
8. para 4 of the Department of Expenditure's OM F.No. 40(06)/PF-S/2017-18 dated 17-5-20 (hereinafter  referred  to  as  DOE  OM)  even  without  meeting  the  pre-conditions.  This  will enable borrowing of approximately Rs. 1 lakh crores in aggregate.
- VIII. The first instalment of 0.5% unconditional borrowing permission granted vide para 4 of the DOE OM remains unaffected. The reform-linked tranches specified in paras 5 to 8 of that OM also remain unaffected.
- IX. In  modification  of  para 9  of  the  DOE  OM,  States will  be  able  to  carry  forward  unutilised extra  borrowing  ceilings  given  under  that  OM  to  the  next  financial  year;  the  instalments under  para  4  (0.5  unconditional  +  another  0.5  as  per  para  VII  above)  can  be  carried forward  unconditionally;  the  reform-linked  portions  can  be  carried  forward  if  the  States meet the reform criteria within the dates already prescribed for this year.
- X. The borrowing under the Special Window will not be treated as debt of the State for any norms which may be prescribed by the Finance Commission etc.
- XI. The Compensation Cess will be continued after the transition period until such time as all arrears of compensation for the transition period are paid to the States. The first charge on the Compensation Cess each year would be the interest payable; the second charge would be  the  principal  repayment.  The  remaining  arrears  of  compensation  accrued  during  the transition period would be paid after the interest and principal are paid.

## Option 2

- I. The  entire  shortfall  of  Rs  235,000  crores  (including  the  Covid-impact  portion)  may  be borrowed by States through issue of market debt. The GOI will issue an OM committing to repayment of principal on such debt from Cess proceeds as per para IV below.
- II.    Appropriate  enhanced special borrowing permission will be given by the GOI under Article 293 based on the following methodology, in modification of scheme notified earlier under the DOE OM:
- a. Each state's borrowing limits for the year will be based on the following calculation:

b.

Basic eligibility (3 % of GSDP) + Amount allowed for shortfall as per Item I above of Option 2+ up to 1% of GSDP (reform-linked as per paras 5 to 8 of DOE OM)

or Basic eligibility (3% of GSDP) + 1% of GSDP + up to 1% of GSDP (reform-linked as per paras 5 to 8 of DOE OM)

## whichever is higher.

- c. The additional unconditional borrowing limit of 0.5% and the final (bonus) tranche of  0.5%  under  para  4  of  the  DOE  OM  will  not  be  separately  available,  being

subsumed under the calculation above.

- d. States will remain eligible for the reform-linked tranches of borrowing under paras 5 to 8 of the DOE OM this year but shall not be eligible to carry them forward. The maximum amount which can be availed under that OM shall stand reduced to 1% of GSDP instead of 2% of GSDP.
- III. The interest shall be paid by the States from their resources.
- IV.  The principal on the amount under Item I above will, after the transition period, be paid from proceeds of the Cess. The States will not be required to repay the principal from any other source .
- V. To the extent of the shortfall arising due to implementation of GST (i.e. Rs. 97,000 crores approximately in aggregate) the borrowing will not be treated as debt of the State for any norms which may be prescribed by the Finance Commission etc.
- VI.  The Compensation Cess will be continued after the transition period until such time as all arrears of compensation for the transition period are paid to the states. The first charge on the future Cess would be the principal repayment. The remaining arrears of compensation accrued during the transition period would be paid after the principal is paid.

It was also decided that States will give their preference and views thereon. Thereafter on finalisation of scheme, the states can chose either Option 1 or Option 2 and accordingly their compensation, borrowing, repayment etc will be dealt as per their individual choice.

****

Annexure Details of GST Compensation

(Rs. in crore)

| S.No   | Nameof State/UT   | GST Compensation released for FY 2019-20   | Provisional GST Compensation due for FY 2020-21 (Apl-Jul)   |
|--------|-------------------|--------------------------------------------|-------------------------------------------------------------|
| (1)    | (2)               | (5)                                        | (6)                                                         |
| 1      | Andhra Pradesh    | 3028                                       | 4627                                                        |
| 2      | Arunachal Pradesh | 0                                          | 0                                                           |
| 3      | Assam             | 1284                                       | 2149                                                        |
| 4      | Bihar             | 5464                                       | 4493                                                        |
| 5      | Chhattisgarh      | 4521                                       | 2827                                                        |
| 6      | Delhi             | 8424                                       | 6931                                                        |
| 7      | Goa               | 1093                                       | 987                                                         |
| 8      | Gujarat           | 14801                                      | 11563                                                       |
| 9      | Haryana           | 6617                                       | 5841                                                        |
| 10     | Himachal Pradesh  | 2477                                       | 1623                                                        |
| 11     | J&K               | 3281                                       | 2104                                                        |
| 12     | Jharkhand         | 2219                                       | 2475                                                        |
| 13     | Karnataka         | 18628                                      | 13763                                                       |
| 14     | Kerala            | 8111                                       | 7077                                                        |
| 15     | Madhya Pradesh    | 6538                                       | 5863                                                        |
| 16     | Maharashtra       | 19233                                      | 22485                                                       |
| 17     | Manipur           | 0                                          | 53                                                          |
| 18     | Meghalaya         | 157                                        | 255                                                         |
| 19     | Mizoram           | 0                                          | 6                                                           |
| 20     | Nagaland          | 0                                          | 27                                                          |
| 21     | Odisha            | 5122                                       | 3633                                                        |
| 22     | Puducherry        | 1057                                       | 564                                                         |
| 23     | Punjab            | 12187                                      | 6959                                                        |
| 24     | Rajasthan         | 6710                                       | 6312                                                        |
| 25     | Sikkim            | 0                                          | 69                                                          |
| 26     | Tamil Nadu        | 12305                                      | 11269                                                       |
| 27     | Telangana         | 3054                                       | 5424                                                        |
| 28     | Tripura           | 293                                        | 259                                                         |
| 29     | Uttar Pradesh     | 9123                                       | 11742                                                       |
| 30     | Uttarakhand       | 3375                                       | 2235                                                        |
| 31     | West Bengal       | 6200                                       | 7750                                                        |
| Total  | Total             | 165302.00                                  | 151365.00                                                   |