Centre releases Rs 1.65 trillion as GST compensation to states for FY20

Cess collection was at Rs 95,444 crore, surplus fund of previous years and unallocated IGST fund used

The Centre on Monday revealed that it released around Rs 14,000 crore to states as compensation for their losses due to the goods and services tax (GST) for March 2020. This takes the total compensation released for financial year 2019-20 (FY20) to Rs 1.65 trillion, against a cess collection of Rs 95,444 crore for this purpose. 

The Centre had released Rs 1.51 trillion for April-February period of FY20. The payment for March was delayed because of inadequate collections from the compensation cess. The biggest slice of the compensation went to Maharashtra at Rs 19,233 crore for FY20, showed data released by the finance ministry on Twitter. 

Last month, the Centre had released Rs 36,400 crore as GST compensation to the states and Union Territories for three months till February. For the April-November 2019 period, the Centre had already released Rs 1.15 trillion to the states.   

The Centre had released Rs 69,275 crore in FY19 and Rs 41,146 crore in FY18 as compensation for GST, rolled out on July 1, 2017. The cess collections in FY20, FY19 and FY18 was Rs 95,444 crore, Rs 95,081 crore, and Rs 62,611 crore, respectively.

As the compensation requirement of the states was lower than the collection in the first two years, Rs 47,271 crore had remained unutilised. This, coupled with unallocated IGST collections, came in handy for the Centre to compensate states. 

Under the GST law, states were guaranteed payment for any loss of revenue in the first five years of its implementation. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under the 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from this are used to compensate states. There were no differences between the Centre and states with regard to compensation payment in FY18, FY19, and the first four months of FY20. However, with the revenue mop-up from the compensation cess falling short, the Centre held back fund transfers to states beginning in August 2019.