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Karnataka has toed the Centre’s line by choosing Option 1 for GST compensation, which offers cess plus borrowal via a special window.
The State government, in a statement, said: “We are happy to note that the rights of the States with respect to their entitlement of entire compensation due under GST has been recognised and accepted by the Central government. The arrears of compensation during the transition period would be met by extension of cess beyond 2022, if so decided by the Council.”
It felt that Option 1 would be more beneficial to the State’s finances. Hence, it has decided to convey to the Centre its preference.
Under Option 1, Karnataka is eligible for total compensation of ₹18,289 crore with ₹6,965 crore from cess and ₹11,324 crore from borrowing through a special provision. The entire repayment will be met out of the compensation cess fund in the future.
An additional borrowing up to one percent of the GSDP ( ₹18,036 crore) will be available unconditionally and another one per cent borrowing can be linked to certain reforms.
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