Lok Sabha Question No. 2156 (UNSTARRED), answered on 2021-08-02
Subject: Payment of GST Compensation to Karnataka
Ministry: FINANCE
Asked by: Nalin Kumar Kateel

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA UN-STARRED QUESTION NO- 2156

ANSWERED ON-02/08/2021

## PAYMENT OF GST COMPENSATION TO KARNATAKA

## 2156.  SHRI NALIN KUMAR KATEEL:

Will the Minister of FINANCE be pleased to state:

- (a) whether it is a fact that Union Government will have to borrow Rs 1.58 lakh crore this fiscal year and pass it on to the States to offset losses arising out of GST implementation and the revenue slump due to the pandemic and if so, the details thereof;
- (b) whether Karnataka had received Rs 12,407 crore as GST compensation in loans borrowed by the Union Government through a special window for the fiscal year 2020-2021 and if so, the details thereof;
- (c) whether  it  is  true  that  despite  this,  the  shortfall  in  revenue  under  the  GST  regime  was  an additional Rs 12,000 crore for Karnataka and if so, the details thereof;
- (d) whether  Karnataka  has  requested  the  Union  Government  seeking  exemption  on  resources required for Covid and Black fungus treatment and if so, the details thereof; and
- (e) the financial assistance released to Karnataka under the Special Borrowing Window and the amount provided under the regular GST Compensation Scheme during the last two years?

## ANSWER

## MINISTER OF STATE IN MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

(a) and (b): For the purpose of payment of compensation to States for any loss of revenue arising on account of implementation of GST for five  years, a GST Compensation Cess is levied on select items under Section 8 of the GST (Compensation to States) Act, 2017. This is transferred into a non-lapsable Fund known as GST Compensation Fund which forms part of the Public Account of India as provided in Section 10(1) of the act. All releases of compensation to States are done only out of Compensation Fund as per Section 10(2) of the said Act and not from the Consolidated Fund of India. Accordingly, GST compensation of Rs. 7670 crore for FY 2017-18, Rs. 12465 crore for FY 2018-19 and Rs. 18628 crore for FY 2019-20 has already been released to State of Karnataka. The economic impact of the pandemic has led to higher compensation requirement due to lower GST  collection and  at  the  same  time  lower  collection  of  GST  compensation  cess.  GST compensation of Rs. 8298 crore has been released to Karnataka to partly meet the compensation payable for the period April'20 to March'21 as the amount in GST Compensation Fund was not adequate to meet the full compensation requirement.

The issue of GST Compensation to States has been deliberated in the 41st and 42nd GST Council  meetings.  Accordingly,  in  FY  20-21,  Centre  had  borrowed  Rs.  1.1  lakh  crore  under  a special  window  and  passed  on  to  the  States  as  back-to-back  loan  to  help  the  States  meet  the resource  gap  due  to  short-release  of  compensation  on  account  of  inadequate  balance  in  the Compensation  Fund.  This  arrangement  has  been  finalized  after  detailed  deliberations  with  the States  and  all  States  have  opted  for  this  arrangement.  As  per  this  decision  Rs.  12407  crore  was released to Karnataka in FY 2020-21 as back to back loan in lieu of GST compensation. Subsequent to deliberations in the 43rd GST Council meeting, it has been decided that the Centre is borrowing Rs. 1.59 lakh crores from the market through special window in current FY and passing it on to the

States/  UTs as  a  back  to  back  loan  in  appropriate  tranches  as  was  done  in  last  year.  As  per  this decision Rs. 75000 crore has been released to States/ UTs on 15.07.2021. This amount includes Rs. 8542.17 crore released to the State of Karnataka. In addition, depending on the amount available in the Compensation Fund, Centre has also been releasing the regular GST compensation to States to make up for GST revenue shortfall. The states will be paid full GST Compensation as per GST (Compensation to States) Act, 2017 for the transition period by extending the levy of Compensation cess  beyond  5  years  to  meet  the  GST  revenue  shortfall  as  well  as  servicing  the  loan  borrowed through special window scheme.

- (c): No Sir. Provisional GST compensation of only Rs.7202 crore is yet to be released for the FY 2020-21.  Taking  into  account  Rs.8542.17  crore  released  as  back  to  back  loan  to  the  State  of Karnataka on 15.07.2021 in lieu of GST compensation for the FY 2021-22, no GST compensation is due for the period April-May, 2021 of the current financial year.
- (d):  The  following  references  were  received  from  the  Government  of  Karnataka  in  respect  of exemption on resources required for COVID, namely-
- (i)  D.O.  No.  CS/537/2021  dated  09.05.2021  from  the  Chief  Secretary,  Government  of Karnataka, to amend Ad hoc Exemption Order No. 4/2021-Customs dated 03.05.2021 to allow the goods purchased using donations and CSR funds to obtain IGST exemption if these goods are  meant  for  free  distribution  either  to  the  state  or  to  any  hospitals/facilities  involved  in COVID 19 management.

(ii) D.O. No. CHS:541:2021 dated 12.05.2021 from Chief Secretary, Government of Karnataka, seeking  IGST  exemption  on  certain  additional  items  (with  reference  to  Ad  hoc  Exemption Order  No.  4/2021-Customs  dated  03.05.2021)  as  they  are  part  of  COVID  19  pandemic management,  namely  -  PPE  kits,  N95  masks/triple  layer  masks,  surgical  masks,  pulse oximeters.

(e): As above in (a) and (b).

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