Centre releases ₹40,000 crore as GST compensation

October 8, 2021

Central government released an amount of Rs 40,000 crore on October 7, 2021 to states and union territories (UTs) with legislature.

Highlights

The amount was released under back-to-back loan facility for meeting the shortfall in GST compensation.
Amount was released in addition to normal GST compensation which is being released every two months out of actual cess collection.
In the fiscal year 2021-22, GST compensation is funded from borrowings of the Centre in five-year securities, totalling Rs 23,500 crores at weighted average yield of 5.69%. It will also be funded in two-year securities, totalling Rs 16,500 crores at a weighted average yield of 4.16% per annum.
With this release, total amount in the current financial year as back-to-back loans has equalled to Rs 1,15,000 crore.
Before this release, Ministry had given Rs 75,000 crores to states in July 2021.

Significance of the release

This release is expected to help states in planning their public expenditure, for improving health infrastructure and launching new infrastructure projects.

Background

These amounts are being released in accordance to the decision taken by 43rd GST Council Meeting. In the meeting, government had decided to borrow Rs 1.59 lakh crore in 2021-22 and release the among to states on a back-to-back basis for meeting resource gap. Resource gap has been created due to inadequate amount collected in compensation fund. This amount was decided on the basis of principles adopted in FY 2020-21, where Rs 1.10 lakh crores were released to states.

GST compensation cess

Central government provides “GST compensation cess” keeping the promise with states in the backdrop of enactment of 101^st constitutional Amendment Act, 2016 that made GST applicable from July 1^, 2017. Under GST, central and state indirect taxes were merged into a single tax. Thus, central government compensate for any shortfall in tax revenue because of implementation of GST . This compensation would be given for a period of five years.

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