The release of GST compensation to the States/UTs is an ongoing process, and the amount released by the Centre varies from time to time. However, as of my knowledge cutoff date of September 2021, the last release of GST compensation by the Centre was in March 2021, when an amount of Rs. 17,000 crore was released to the States/UTs. The release of GST compensation is governed by the GST (Compensation to States) Act, 2017, which provides for the payment of compensation to the States/UTs for any revenue loss arising from the implementation of the GST. The compensation is to be paid for a period of five years from the date of implementation of the GST, i.e., from July 1, 2017. The release of GST compensation has been a matter of concern for some States/UTs, as they have complained of delays in the release of compensation by the Centre. However, the Centre has maintained that it is committed to meeting its obligations under the GST (Compensation to States) Act, 2017, and will release the compensation due to the States/UTs in a timely manner.
GST compensation is a mechanism that was introduced to provide financial assistance to state governments for any revenue losses incurred due to the implementation of the Goods and Services Tax (GST) in India. The GST compensation is given to the state governments to make up for any shortfall in revenue collection during the transition period from the previous indirect tax regime to the GST regime.
The GST compensation is given to the states under the GST (Compensation to States) Act, 2017. The Act provides for compensation to the states for a period of five years from the date of implementation of the GST, i.e., from July 1, 2017.
The eligibility for GST compensation is determined based on the difference between the revenue collected by the state government under the GST regime and the projected revenue for that state in the pre-GST regime. If there is a shortfall in revenue, the state government is eligible for GST compensation.
The GST compensation is paid out of the GST Compensation Fund, which is funded through a cess on certain goods and services. The GST Compensation Cess is levied on the following goods:
1. Pan Masala
2.. Tobacco and tobacco products
3. Aerated waters
4. Motor vehicles
The compensation cess is levied in addition to the GST on these goods, and the revenue collected through the cess is used to fund the GST Compensation Fund.
It is important to note that the GST compensation is only applicable to the state governments and not to the Union Territory administrations.
The GST compensation to states and UTs is primarily funded through the GST compensation cess, which is levied on certain goods and services that fall under the higher tax rate categories. The proceeds from the cess are then used to compensate the states for any revenue loss incurred due to the implementation of GST.
The GST compensation cess is levied on a few goods and services, including cigarettes, tobacco products, pan masala, aerated drinks, and certain types of luxury cars. The revenue collected from the cess is then transferred to the GST compensation fund, which is used to compensate the states for any revenue loss.
In addition to the GST compensation cess, the Centre also has the option to borrow funds from the market to meet any shortfall in the GST compensation to states and UTs. The borrowings are then repaid through the proceeds from the GST compensation cess. However, this option is only available till June 2022, after which it will be reviewed based on the revenue position of the government.
There are no frequently asked questions specifically related to the recent release of Rs. 17,000 crore of GST compensation to States/UTs by the Centre. However, here are some general FAQs related to GST compensation:
What is GST compensation?
1. GST compensation is a mechanism to compensate States for any loss of revenue they may face due to the implementation of the Goods and Services Tax (GST).
Who is eligible for GST compensation?
2. States that have faced a revenue shortfall after the implementation of GST are eligible for compensation from the Centre.
How is GST compensation calculated?
3. The compensation is calculated based on the difference between a State's revenue from taxes in the pre-GST period and its estimated revenue under the GST regime.
How is GST compensation funded?
4. The GST compensation is funded through the GST Compensation Cess, which is levied on certain luxury and demerit goods.
Why was the recent release of Rs. 17,000 crore significant?
5. The recent release of Rs. 17,000 crore was significant because it was the first time in several months that the Centre had released GST compensation to the States. The delay in releasing the compensation had created financial difficulties for several States.
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