Many states request GST compensation extension beyond 5 years: FM

Many states have requested extension of the compensation mechanism under the GST beyond June 2022, Finance Minister Nirmala Sitharaman said on Monday.

Under the Goods and Services Tax (GST) law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of GST implementation from July 1, 2017.

The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16. The 5-year period ends in June 2022.

The compensation amount to be paid from the compensation fund is arrived at by levying cess on top of the highest tax slab on luxury, demerit and sin goods.

In a written reply in the Lok Sabha, Sitharaman said the central government is committed to giving GST compensation to states/UTs for 5 years as per the Constitutional provision.

To a query whether the government has received proposals from state governments requesting extension of compensation mechanism for another five years in view of difficulties caused by the pandemic, she said “Yes Sir. Many states have requested for extension of the compensation period during the deliberations in GST Council and in letters addressed to the central government”.

GST compensation for financial years 2017-18, 2018-19 and 2019-20 has already been paid to states.

Since collections in the compensation fund are falling short of requirement, for 2020-21 and 2021-22, the Centre has borrowed funds worth Rs 1.10 lakh crore and Rs 1.59 lakh crore, respectively and passed it on to states as back-to-back loans.

The compensation cess, levied on luxury and demerit goods, will continue to be collected till March 2026 to repay the borrowings that were done in 2020-21 and 2021-22 to compensate states for GST revenue loss.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.


We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor