The Central Government has notified a four-year extension to the GST compensation cess till June, 2026. The notification issued on Friday stated that “the period for levy and collection of cess under sub-section (1) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 shall be upto the March, 2026. ”
In June, 2022, the Union Finance Minister Ms. Nirmala Sitharam hinted about giving a five-year extension to the compensation to the States.
“If there is a need for borrowings to meet compensation to states, who are going to borrow. How we are going to pay for it…,” she said before meeting of the Council, hinting that fall in revenues has become a big cause of concern for the Centre to meet its liability towards the states as per GST legislation.
Under GST law, states are guaranteed full compensation for any revenue loss for the first five years after the introduction of the goods and services tax (GST) in July 2017. The compensation is the gap between the actual revenue collected and projected revenue. The projected revenue is revenue growth of 14 per cent for states per year over the base year 2015-16. As per the GST Act, full compensation to the states has to be paid for a period of five years till FY22 only through the compensation fund that gets its funds through the levy of GST compensation cess on few items. However, with the fund not getting enough collections since August 2019, GST compensation to states have been delayed with Centre now looking at getting GST Council nod for a mechanism to finance the compensation.
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