Lok Sabha Question No. 378 (STARRED), answered on 2023-03-27
Subject: GST Compensation Cess
Ministry: FINANCE
Asked by: Kotagiri Sridhar

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA STARRED QUESTION NO-378

TO BE ANSWERED ON MONDAY, THE 27 TH  MARCH, 2023, CHAITRA 6, 1945 (SAKA)

## GST COMPENSATION CESS

378. SHRI SRIDHAR KOTAGIRI:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government proposes to extend the period of Goods and Services Tax (GST) cess regime and if so, the details thereof and if not, the reasons therefor;
- (b) whether the Government has analyzed the effects of the same on the financial health of various States and if so, the details and the outcome thereof; and
- (c)  the  details  of  various  measures  being  taken  by  the  Government  in  this  respect  to ensure appropriate financial health of various States?

## ANSWER

THE MINISTER OF FINANCE (MS. NIRMALA SITHARAMAN)

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

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## STATEMENT REFERRED IN REPLY TO LOK SABHA STARRED QUESTION NO. 378 FOR ANSWER ON 27 TH  MARCH, 2023, CHAITRA 6, 1945 (SAKA)

(a) to (c):- As per section 18 of the Constitution (One Hundred and First Amendment) Act, 2016, compensation to the States for loss of revenue arising on account of implementation of the goods and services tax is payable for a period of five years. During transition period, the States' revenue is protected at 14% per annum over the base year revenue of 2015-16. Central Government is committed for payment of GST compensation to States/UTs for five years as per law enacted by the Parliament according to the Constitutional provision.

As per the provisions of section 7(2) of Goods and Services Tax (Compensation to States) Act,  2017,  enacted  by  Parliament,  the  compensation  payable  to  a  State  shall  be provisionally calculated and released at the end of every two months period, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor General of India. Government of India has already released the entire amount of provisionally admissible GST compensation to the States/UTs for loss of revenue arising on account of implementation of Goods and Services Tax for five years i.e.,  from  1st  July,2017  to  30th  June,  2022.  However,  as  per  Section  12  (d)  of  GST (Compensation  to  States)  Act,  2017,  on  the  recommendation  of  the  GST  Council, 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 payment of arrears of previous FYs based on AG reconciled figures.

The  Government,  on  the  recommendations  of  the  GST  Council,  has  taken  several measures to increase the tax base and improve the tax compliance. Monthly gross GST collection has shown great buoyancy in the current year. In the current financial year up to February 2023, the average monthly GST collection is Rs.1.49 lakh crore as compared to Rs.1.21 lakh crore for the same period last year which is 23% higher than the same period last year.

In  order  to  boost  capital  expenditure  by  the  States,  fifty  year  interest  free  loan  of Rs.11,830.29 crore and Rs.14185.78 crore was released to States during FY 2020-21 and FY 2021-22 respectively under the 'Scheme for Special Assistance to States for Capital Expenditure'. In addition, capital projects of Rs. 89,267 crore have been approved and an amount of Rs.66,015 crore have already been released to the States during FY 2022-23 so far  (up  to  22.03.2023)  under  'Scheme  for  Special  Assistance  to  States  for  Capital Investment for 2022-23'. This amount is over and above, the normal net borrowing ceiling.

The  Fifteenth  Finance  Commission  (15 th   FC)  has  recommended  Revenue  Deficit  Grants amounting to Rs.2,94,514 crore for seventeen States for the five years period from 2021-22 to  2025-26.  Based  on  the  recommendations  of  15 th   FC,  Revenue  Deficit  Grant  of Rs.1,18,452 crore was released to States in FY 2021-22 and Rs.86,201 crore has been released in current FY 2022-23.

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