GST compensation to States for loss of revenue arising on account of implementation of GST for a period of five years

According to section 18 of the Constitution (One Hundred and First Amendment) Act of 2016, on the recommendation of the Goods and Services Tax Council, Parliament shall pass legislation to compensate the States for revenue losses resulting from the implementation of the goods and services tax for a five-year period. In a written response to a question in the Rajya Sabha today, Union Minister of State for Finance Shri Pankaj Chaudhary made this claim.

The Minister claimed that at the 45th GST Council meeting, held in Lucknow, the topic of compensating States and UTs and increasing resources under GST were thoroughly discussed. Two Groups of Ministers (GoMs), the GoM on GST System Reforms and the GoM on Rate Rationalization, have been established as a result of the Council’s decision. In its interim report, the GoM on Rate Rationalization made recommendations for some inverted duty revisions and the trimming of exemptions, which were addressed and taken into account at the most recent GST Council meeting held in Chandigarh.

As a result, the Minister stated, the continued reforms in GST undertaken by Centre and States, on the recommendations of the GST Council, buoyancy in GST revenue has been achieved in the recent months. The average monthly gross GST collection for the first quarter of the FY 2022-23 has been ₹1.51 lakh crore against the average monthly collection of ₹1.10 lakh crore in the first quarter of the last Financial year showing an increase of 37%, the Minister stated.

According to the Minister, a few States have asked for the prolongation of the payment of GST compensation past the five-year transition period.

The Minister added that under to Section 7 of the GST (Compensation to States) Act, 2017, the States are required to receive compensation for revenue losses resulting from the implementation of GST (beginning on July 1, 2017) for a period of five years. Revenues for the States are protected during the transition period at an annual growth rate of 14% over base year revenues (2015-16). The States are therefore reimbursed for any shortfall using their protected revenue.

The details of GST compensation due and released to States/ UTs for the year 2017-18 to 2022-23 is as per ANNEXURE.