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GST compensation to States and three Union Territories of over ₹81,000 crore is still pending for FY21, while for the first two months of FY22 alone, the amount is over ₹55,000 crore. This information was shared by Minister of State for Finance Pankaj Chaudhary in the Lok Sabha.
GST compensation is paid bi-monthly for shortfall in revenue collection — below 14 per cent per annum. This is to be paid through compensation cess levied on items such as motor car and tobacco-based products. From last fiscal, compensation cess and special borrowing are being used to bridge the gap.
In a written answer to unstarred question in Lok Sabha, Chaudhary said that the economic impact of the pandemic has led to higher compensation requirement due to lower GST collection and lower GST compensation cess.
“GST compensation of ₹91,000 crore has been released to all States/ UTs to partly meet the compensation payable for April 2020 to March 2021, as the amount in GST Compensation Fund was not adequate to meet the full compensation requirement,” he said. This amount is from compensation cess.
Special window borrowing
Based on deliberations during the 41st, 42nd and 43rd meeting of the GST Council, it was decided to borrow ₹1.1-lakh crore and ₹1.59-lakh crore for FY21 and FY22, respectively, under a special window, and was passed on to the States as back-to-back loan to help them meet the resource gap due to short release of compensation on account of inadequate balance in the Compensation Fund.
For FY21, the entire amount was borrowed, while for FY22, ₹75,000 crore has been raised and passed on to the 28 States and three Union Territories (with legislature).
In addition, depending on the amount available in the Compensation Fund, the Centre has also been releasing the regular GST compensation to States to make up for GST revenue shortfall, Chaudhary said.
Borrowing by the Centre helps raise money at a lower cost. The interest and principal amount will be repaid through compensation cess collection. Also, this borrowing is not affecting the Centre’s borrowing plan to meet its fiscal deficit.
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