Lok Sabha Question No. 8 (STARRED), answered on 2022-07-18
Subject: GST Compensation Cess
Ministry: FINANCE
Asked by: Gaddam Ranjith Reddy, Venkatesh Netha Borlakunta

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA STARRED QUESTION NO-8

TO BE ANSWERED ON MONDAY, THE 18 TH  JULY, 2022

## GST COMPENSATION CESS

## 8. DR. G. RANJITH REDDY:

## SHRI VENKATESH NETHA BORLAKUNTA:

Will the Minister of FINANCE be pleased to state:

- (a)  whether the Government has extended the Goods and Services Tax (GST) Compensation Cess period upto 2026 and if so, the details thereof;
- (b) whether it is true that many States including Telangana, have been demanding for extension of GST compensation given to States beyond June, 2022 and if so, the details thereof; State-wise;
- (c) whether the Government has taken this proposal before the GST Council;
- (d) if so, whether any decision has been taken in recently concluded GST Council meeting, if so, the details thereof and if not, the reasons therefor; and
- (e)  whether  the  Government  proposes  to  introduce  an  amendment  to  the  Goods  and  Services  Tax (Compensation to States) Act, 2017 to extend the period for collection of Compensation Cess beyond 1st July, 2022, if so, the details thereof and if not, the reasons therefor?

## ANSWER

THE MINISTER OF FINANCE (MS. NIRMALA SITHARAMAN)

(a) to (e):  A statement is laid on the Table of the House.

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## STATEMENT REFERRED TO IN REPLY TO LOK SABHA STARRED QUESTION NO. 8 FOR ANSWER ON 18 TH  JULY, 2022

(a)  to  (e):  GST  Council, in  its  42nd  meeting  has  recommended extending the period of levy of GST Compensation cess beyond June 2022 to cover the entire shortfall as well as servicing the back to back loan released to States to meet the resource gap of the States due to the short release of compensation. Centre borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of the shortfall in cess collection. In addition, Government of India has further released ₹ 86,912  crore  to  States/UTs  on  31st  May,  2022  and  cleared  the  entire  provisionally  admissible  GST compensation  due  till  May,  2022.  This  decision  was  taken  to  assist  the  States  in  managing  their resources  and  ensuring  that  their  programmes  especially  the  expenditure  on  capital  is  carried  out successfully  during  the  financial  year.  This  decision  has  been  taken  despite  the  fact  that  only  about Rs.25,000 crore was available in the GST Compensation Fund. The balance ₹62,000 crore was released by the Centre from its own resources pending collection of Cess.

Accordingly, as per Section 12 (d) of GST (Compensation to States) Act, 2017, Notification No. 1/2022-Compensation Cess dated 24.06.2022 has been issued to continue levy and collection of GST compensation cess till March, 2026 to repay amount of back to back loan released to States in 2020-21 and  2021-22  in  lieu  of  GST  Compensation  shortfall  and  for  payment  of  GST  compensation  for  the month of June, 2022 and arrears of previous FYs based on AG reconciled figures.

A few States including Telangana have requested for extension of payment of  GST compensation  beyond  transition  period  of  five  years.  As  per  section  18  of  the  Constitution  (One Hundred  and  First  Amendment)  Act,  2016,  Parliament  shall,  by  law,  on  the  recommendation  of  the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.

Central  Government  has  released  provisional  GST  compensation  upto  May,  2022  and  is committed  to  releasing  full  GST  compensation  to  States/UTs  for  5  years  as  per  the  Constitutional provision.  The  issues  of  compensation  to  States/UTs  and  augmenting  resources  under  GST  were discussed in detail in the 45th GST Council meeting held in Lucknow. Consequent to the decision of the Council, two Group of Ministers (GoMs), namely GoM on GST System Reforms and GoM on Rate Rationalization have been constituted. GoM on Rate Rationalization has submitted its interim report, recommending certain inverted duty corrections and pruning of exemptions, which was discussed and considered in the last GST Council meeting held at Chandigarh. As a result of the continued reforms in GST undertaken by Centre and States, on the recommendations of the GST Council, buoyancy in GST revenue has been achieved in the recent months. The average monthly gross GST collection for the first quarter of the FY 2022-23 has been ₹1.51 lakh crore against the average monthly collection of ₹1.10 lakh crore in the first quarter of the last financial year showing an increase of 37%.

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