At the time of introduction of GST, the
Constitution amendment provided that the Parliament, by law shall provide
compensation to States for a period of five years for loss of revenue due to
introduction of GST.
Accordingly, the GST Compensation to States
Act was legislated which provides for release of compensation against 14%
year-on-year growth over revenues in 2015-16 from taxes subsumed in GST.
This compensation cess is credited to the
compensation fund and as per the Act, all compensation is paid out of the fund.
Presently, cess is
levied on items like pan masala, tobacco, coal and cars.
Compensation of about ₹ 49,000 crore has
been released for 2017-18 from the fund, which increased to ₹ 83,000 crore for
2018-19 and further to ₹ 1.65 lakh crore in 2019-20. For these three years,
almost ₹ 3 lakh crore compensation was released to States. However, the
compensation requirement increased substantially during 2020-21 due to impact
of covid on revenues. To ensure that States have adequate and timely resources
to combat covid and related issues, Centre borrowed ₹ 1.1 lakh crore in 2020-21
and ₹ 1.59 lakh crore in 2021-22 and passed it on to States on a back-to-back
basis. During 2021-22,
Centre ensured that release of this
amount of ₹ 1.59 lakh crore was front loaded to ensure that States have
adequate resources in the earlier part of the year.
Nothing is pending for the year 2020-21
Taking into account this loan, ₹ 2.78
lakh crore of compensation has been released to States for the year 2020-21
itself and nothing is pending for the year. Including the assistance released
on back-to-back basis, ₹ 7.35 lakh crore has been released to States till now
and, currently, only for the year 2021-22, compensation of ₹78,704 crore is
pending due to inadequate balance in the fund, which is equivalent to
compensation of four months.
Normally, compensation for ten months of
April-January of any financial year is released during that year and the
compensation of February-March is released only in the next financial year. As
explained earlier, compensation of eight out of ten months of 2021-22 has
already been released to States.
The pending amount
will also be released as and when amount from cess accrues in the compensation