One-Third of State Revenue to Be Outside GST Purview: What Does This Mean for Businesses and States?

India’s Goods and Services Tax (GST) has been operational since 2017, and it has changed the way the country pays taxes. The GST subsumed various indirect taxes and created a uniform tax rate for goods and services across the country. However, it seems that the GST regime is still evolving, and changes are being made to the tax structure.

The most recent development in the GST is that one-third of state revenues will be outside the GST purview. This means that any revenue that the state earns outside of GST will not be divided between the Centre and the state as per the GST Act. In simpler terms, the state can keep all the revenue earned outside of GST.

According to reports, the decision to keep one-third of state revenues outside the GST purview was taken at the 42nd GST Council meeting held on October 5, 2021. Sources suggest that the decision was taken to compensate states that were unable to collect GST revenue due to the pandemic.

What does this mean for businesses?

The decision to keep one-third of state revenues outside the GST purview will have a significant impact on businesses across the country. The primary impact will be on businesses that are located in states that have decided to keep one-third of their revenue outside GST. These businesses will now have to pay taxes outside of GST as well, which will make their tax payments more complicated.

Another impact will be on businesses that operate across multiple states. These businesses will have to deal with different tax structures and regulations for the states that have decided to keep one-third of their revenue outside GST. This could potentially increase the compliance costs for these businesses.

However, there could be some businesses that benefit from this decision. For example, businesses that generate a significant portion of their revenue outside India may not have to pay GST on that revenue, which could reduce their tax burden.

What are the implications for states?

The decision to keep one-third of state revenues outside the GST purview will have significant implications for the states that have decided to do so. These states will be able to keep all the revenue earned outside of GST, which could potentially increase their revenue. However, this could also lead to a situation where some states have more revenue than others, which could create a divide between the states.

Another implication for the states is that they will have to deal with different tax structures and regulations for the revenue earned outside of GST. This could potentially make the tax system more complicated and increase the compliance costs for the states.

Conclusion

The decision to keep one-third of state revenues outside the GST purview is a significant development in the GST regime. While it could potentially increase revenue for some states, it could also make the tax system more complicated for businesses and states alike. It remains to be seen how this decision will affect the overall GST structure and whether it will lead to more changes in the future.