Centre may release Rs 35,000 cr to states as June GST compensation

GST compensation has remained a sticking point between the Centre and states

GST
Just for FY23, the official said, the interest component for the borrowed amount would be around Rs 15,000 crore
Arup Roychoudhury New Delhi
3 min read Last Updated : Aug 15 2022 | 10:48 PM IST
The Centre may release about Rs 35,000 crore to states as goods and service tax (GST) arrears by September-end, Business Standard has learnt, taking the compensation for the year (FY23) to Rs 1.2 trillion.

“We have so far released Rs 85,000 crore in arrears this year and will soon release around Rs 35,000 crore more for June,” a top government official said.

According to the GST (Compensation to States) Act, states won’t get GST compensation beyond June 2022. However, the compensation cess will continue to be levied on certain items in the 28 per cent bracket till March 2026. This will primarily be used to repay the principal and interest for the Rs 2.69 trillion the Centre borrowed and distributed to states in FY21 and FY22 in lieu of GST compensation shortfall. Tax revenues were hit due to the Covid-19 pandemic.

Just for FY23, the official said, the interest component for the borrowed amount would be around Rs 15,000 crore.

“Out of the Rs 85,000 crore that was cleared earlier this year, only Rs 25,000 crore came from the compensation cess fund. For the rest, the Centre dipped into its own cash balance. So that will have to be replenished,” the official said.

Additionally, once GST refunds are calculated and the Comptroller and Auditor General (CAG) audits the books of the states, whatever pending amount comes up will also have to be distributed to the states to square off their books, the official said. This amount, cumulatively, is not expected to be less than Rs 35,000 crore, the official added.

The bulk of the compensation cess collected will, of course, be used to pay back the borrowed amount and its interest. Whatever is left in the compensation cess fund as of March 2026 will be divided among the Centre and states equally, as mandated by the Act.

GST compensation has remained a sticking point between the Centre and states. After the last GST Council meeting in Chandigarh, Finance Minister Nirmala Sitharaman had said that 16 states had spoken on the compensation issue, cutting across party lines. No decision was taken, however.

Central government officials and most independent experts say that the improved GST receipts mean that GST compensation is unlikely to be extended, as most states will see windfall gains this year.
How states will benefit
  • Bulk of cess collected to be used to pay back Rs 2.69 trillion in loan plus interest
  • Interest due in FY23 estimated to be around Rs 15,000 crore
  • Centre had paid Rs 60,000 crore from its own cash balance to states
  • Centre’s public accounts to be replenished
  • Further compensation backlog to be cleared after auditing of books
     

One subscription. Two world-class reads.

Already subscribed? Log in

Subscribe to read the full story →
Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

Topics :GSTgoods and service taxGST compensation

Next Story