No clarity on GST compensation to States as Council meet ends

Shishir Sinha | | Updated on: Jun 29, 2022
Finance Minister Nirmala Sitharaman at a press conference  in Chandigarh, on Wednesday

Finance Minister Nirmala Sitharaman at a press conference in Chandigarh, on Wednesday | Photo Credit: -

States want extension beyond June 30, when the compensation period ends

Confusion still prevails over compensation to States under GST beyond June 30 as two-day GST Council meeting concluded here with exhaustive discussions on the issue but without any concrete decision. The Council simultaneously took some significant decisions in terms of doing away exemptions and inverted duty structure on various goods and services along with structural reforms in GST system.

Five-year compensation period is ending on Friday and many States urged to extend for at least 5 years as pandemic has impacted their revenue.  States are hopeful for extension though Centre is not giving any extension.

“A few States before lunch today said that they would like the compensation to continue for some time, even as few other States said that yes, it is a question of coming out of pandemic but they have to stand on their feet. Statements were being made with a sense of whether compensation can be continued if not for five years but for a few years,” Finance Minister Nirmala Sitharaman said in press conference. As many as 16 States spoke on GST compensation. Of this there were 3-4 States said that they have to “stand on their own feet”.

The recommendation

As per Section 18 of the Constitution (101st) Act, 2016, Parliament shall, by law, on the recommendation of the GST Council, provide for compensation to States for loss of revenue arising on account of implementation of the GST for five years from the date of its implementation. During the transition period, the States’ revenue is protected at 14 per cent per annum over the base year revenue of 2015-16.

A senior government official said that as per law, compensation ending on June 30. “Now for extension, there need to be amendment in the Constitution. It cannot happen overnight,” he explained.

Reports by Group of Ministers

Meanwhile, Sitharaman informed that the Council took up reports by four Group of Ministers. While recommendations regarding doing away exemptions and inverted duty structure (higher rate on inputs and lower rate on finished products) by GoM on rate rationalisation, e way bill requirement for intra-state movement of gold and other precious metals by second GoM and IT reforms by third GoM have been accepted, GoM on online gaming, casinos and horse racing gave been given 15 days to come out with further clarity. The Council has decided to constitute a GoM on constitution of GST Appellate Tribunal.

There have been apprehensions that inflation will go up because of doing away with exemption and IDS. When asked Finance Minister said: “Inflation is not only not any particular state concern. All ministers are aware. They are all looking at the system keeping that in mind. So, decisions taken by the council are not as though are being taken in isolation Elected representatives who are part of the GST council are fully conscious of the decision taken.”

Now, next meeting of GST Council take place in first week of August at Madurai with two reports by GoMs – one on online gaming, casinos and horse racing and second one on tribunal.


-       GST to be levied on pre-packed, pre-labelled curd, lassi and butter milk, Paneer, natural honey, fish& meat (other than chilled or fresh), certain kinds of vegetables, barley, oats, maize, millets, corn flour, jaggery, puffed rice, parched padd

-       Correction in Inverted Duty Structure, GST rate to go up

-       •          E-waste: 18% from 5%

-       •          Printing, writing ink: 18 % from 12%

-       •          Knives, Spoons, forks: 18% from 12%

-       •          LED lamps, lights, fixtures: 18% from 12%

-       •          Solar water heater: 12% from 5%

-       •          Finished leather: 12% from 5%

Published on June 29, 2022
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