The Finance Department said on Wednesday that the center has already released eight months of GST allocation to states for the fiscal year ending March 2022 and that there are Rs 78,704 crore outstanding due to insufficient funds in the fund.
In a statement, the ministry said that normally GST compensation is released for 10 months (April-January) of each fiscal year that year and February-March compensation is only released during the next fiscal year.
“…compensation for eight months out of ten in 2021-22 has already been paid to the states. The outstanding amount will also be released if the tax amount in the compensation fund increases,” he said.
Under GST, essential items are exempt or taxed at the lowest rate, while luxury items and cons attract the highest rate.
Luxury and Sin pull the finish above the highest record of 28%. This tax collection is used to compensate states for lost revenue due to the introduction of GST.
When GST was introduced on July 1, 2017, the center had agreed to compensate states for five years through June 2022 and protect their income at 14% per annum against 2015-2016 income.
The ministry further said that after accounting for the back-to-back loan, Rs 7.35 lakh crore was disbursed to the states to make up for lost revenue.
“…Currently only Rs 78,704 crore of compensation for 2021-22 is outstanding as the fund is insufficient, which is equivalent to four months of compensation,” the ministry added.
There is no outstanding compensation to the states for the 2020-21 fiscal year and a total of Rs 2.78 crore has been disbursed to the states, including a consecutive loan.
In 2017-2018, Rs 49,000 crore was paid to the states as compensation from the General Settlement Fund. The amount increased to Rs 83,000 in 2018-19 and Rs 1,650 crore in 2019-20.
“During these three years, nearly Rs 3 lakh crore was paid in compensation to the States. However, the compensation requirement increased significantly in 2020-21 due to the impact of Covid on revenue,” he said.
To ensure that states have adequate and timely resources to combat covid and related issues, the center lent Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 and channeled them to states one by one added to the ministry.